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Corporate taxation, incumbency advantage and entry

Author

Listed:
  • Elie Appelbaum

    () (Department of Economics, York University)

  • Eliakim Katz

Abstract

It is the purpose of this paper to show that corporation tax may affect industrial structure. Analyzing the effects of corporation tax, we demonstrate that it tends to favour incumbents over entrants. We further show that the effect of this advantage on an incumbent's output depends on his profit or loss history. An incumbent with a past profit is likely to produce a greater output, thereby partially or fully crowding out an entrant's output. In contrast, an incumbent with a past loss is more likely to produce a smaller output, making entry easier.

Suggested Citation

  • Elie Appelbaum & Eliakim Katz, 1996. "Corporate taxation, incumbency advantage and entry," Working Papers 1996_12, York University, Department of Economics.
  • Handle: RePEc:yca:wpaper:1996_12
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    File URL: http://www.sciencedirect.com/science/article/pii/0014292195000593
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    References listed on IDEAS

    as
    1. Da Rin, Marco & Di Giacomo, Marina & Sembenelli, Alessandro, 2011. "Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe," Journal of Public Economics, Elsevier, pages 1048-1066.
    2. Michel Poitevin, 1998. "Effects of the Fiscal Treatment of Tax Losses on the Efficiency of Markets and the Incidence of Mergers," CIRANO Working Papers 98s-33, CIRANO.
    3. Richard Kneller & Danny McGowan, "undated". "Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries," Discussion Papers 11/08, University of Nottingham, School of Economics.
    4. Cooper, Ian & Franks, Julian R, 1983. " The Interaction of Financing and Investment Decisions When the Firm Has Unused Tax Credits," Journal of Finance, American Finance Association, vol. 38(2), pages 571-583, May.
    5. Alan J. Auerbach, 1986. "The Dynamic Effects of Tax Law Asymmetries," Review of Economic Studies, Oxford University Press, vol. 53(2), pages 205-225.
    6. Jakopin, Nejc M. & Klein, Andreas, 2012. "First-mover and incumbency advantages in mobile telecommunications," Journal of Business Research, Elsevier, vol. 65(3), pages 362-370.
    7. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    8. Davidson, Carl & Martin, Lawrence W, 1985. "General Equilibrium Tax Incidence under Imperfect Competition: A Quantity-setting Supergame Analysis," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1212-1223, December.
    9. E. Appelbaum & E. Katz, 1987. "Asymmetric Taxation and the Theory of the Competitive Firm under Uncertainty," Canadian Journal of Economics, Canadian Economics Association, vol. 20(2), pages 357-369, May.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:eee:deveco:v:130:y:2018:i:c:p:173-189 is not listed on IDEAS
    2. Ricjard Kneller & Danny McGowan, "undated". "Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries," Discussion Papers 12/01, University of Nottingham, School of Economics.
    3. Da Rin, Marco & Di Giacomo, Marina & Sembenelli, Alessandro, 2011. "Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe," Journal of Public Economics, Elsevier, pages 1048-1066.
    4. E. Appelbaum & E. Katz, 1987. "Asymmetric Taxation and the Theory of the Competitive Firm under Uncertainty," Canadian Journal of Economics, Canadian Economics Association, vol. 20(2), pages 357-369, May.
    5. Da Rin, M. & Di Giacomo, M. & Sembenelli, A., 2009. "Entrepreneurship, Firm Entry, and the Taxation of Corporate Income : Evidence from Europe (Revised version of DP 2008-65)," Discussion Paper 2009-61, Tilburg University, Center for Economic Research.
    6. Jakopin, Nejc M. & Klein, Andreas, 2012. "First-mover and incumbency advantages in mobile telecommunications," Journal of Business Research, Elsevier, vol. 65(3), pages 362-370.
    7. Maksim Belitski & Farzana Chowdhury & Sameeksha Desai, 2016. "Taxes, corruption, and entry," Small Business Economics, Springer, vol. 47(1), pages 201-216, June.

    More about this item

    Keywords

    Corporate taxation; Industrial structure; Incumbency advantage;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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