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Managerial Firms, Taxation and Welfare

Author

Listed:
  • Simone MORICONI

    (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM – Lille Economie Management, F-59000 Lille, France, CESifo Munich)

  • Tuna ABAY

    (European University Institute)

Abstract

This paper investigates the welfare properties of an economy where firms are man- agerial, i.e., composed of two complementary units, each run by its own manager. We show that in the market equilibrium, welfare is generally lower in the case of managerial firms than in that of standard production firms due to the private costs that managers bear to coordinate their operating decisions within the firm. In this organizational set- ting, we also derive a number of interesting results regarding the welfare effects of tax- ation. We show that while a lump-sum tax is welfare-neutral, a nonlump-sum tax may have negative, positive or zero net effect on welfare, depending on market conditions, tax levels, and the structure of managerial incentives. In some cases, these welfare ef- fects are due to ‘tax-induced’ changes in the ownership structure of firms in the industry equilibrium.

Suggested Citation

  • Simone MORICONI & Tuna ABAY, 2022. "Managerial Firms, Taxation and Welfare," Working Papers 2022-iFlame-03, IESEG School of Management.
    • Handle: RePEc:ies:wpaper:e202210
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    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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