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Tax Evasion and Unions in a Cournot duopoly

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  • Luciano Fanti
  • Domenico Buccella

Abstract

In a Cournot duopoly with indirect taxes evasion, this paper counter-intuitively shows that, in the presence of unions, a higher taxation may increase profits because taxes reduce wage claims. This result is likely to occur if the market size is adequately large and the detection probability is not too high. Moreover, unionisation 1) leaves unaltered the absolute while reduces the relative tax evasion; and 2) increases tax revenue. Since consumer and social welfare are unaffected by taxation, the policy implication is that higher taxes (which are always revenue-enhancing) ultimately lead to a redistribution from wages to profits.

Suggested Citation

  • Luciano Fanti & Domenico Buccella, 2020. "Tax Evasion and Unions in a Cournot duopoly," Discussion Papers 2020/266, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    • Handle: RePEc:pie:dsedps:2020/266
    Note: ISSN 2039-1854
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    File URL: https://www.ec.unipi.it/documents/Ricerca/papers/2020-266.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax Evasion; Sales Tax; Cournot duopoly; Unions;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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