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Corporation Tax Asymmetries: An Oligopolistic Supergame Analysis

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  • Pierre-Pascal Gendron

Abstract

Corporation tax systems around the world treat gains and losses asymmetrically. This paper examines the impact of changing the refundability of tax losses in a cash flow tax system. A dynamic game of complete information is used to analyse refund policies in an imperfectly competitive setting. In this supergame, firms produce a homogeneous good and sustain tacit collusion by using credible and severe punishments of deviations. The analysis of the most collusive equilibrium with losses indicates that a tax policy which increases refundability has the following impacts: it reduces collusive industry output, increases market price, and therefore enhances tacit collusion. This policy also reduces social welfare even though refunds are never given in equilibrium.

Suggested Citation

  • Pierre-Pascal Gendron, 1996. "Corporation Tax Asymmetries: An Oligopolistic Supergame Analysis," Working Papers ecpap-96-04, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:ecpap-96-04
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    References listed on IDEAS

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    Cited by:

    1. Pierre-Pascal Gendron, 2001. "Corporation Tax Asymmetries and Cartel Unity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(5), pages 659-674, November.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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