This paper deals with the neutrality of profit taxes levied on firms as well as the implications of tax evasion in economies with right-to-manage wage formation and efficient bargaining, respectively. Contrary to the outcome under competitive labor markets, we show that profit taxes are not neutral and the firm’s tax evasion decision is not separable from its production decision under right-to-manage wage formation, where a trade union and firm bargain over the wage rate (except in the special case of a monopoly union). A similar conclusion follows from an efficient bargaining model, where a trade union and firm bargain over both the wage rate and employment. In addition, wage bargaining plays an important role in determining the optimal profit tax and the enforcement policy.
It is generally believed that when trade costs fall, the origin‐based production taxes are superior to the destination‐based consumption taxes under imperfect competition. This result can be justified from a perspective of purely local pollution when considering a production‐type externality. However, we show that with smaller trade costs, the destination‐based consumption taxes tend to generate greater welfare levels than the origin‐based production taxes when the degree of a production‐type transboundary externality is high enough, contrary to general belief.
This paper utilizes the two-period overlapping generations model developed by John and Pecchenino (1994) to examine the impacts of the social security program on environment quality. The main findings are as follows. First, a higher social security benefit leads to a lower environmental quality. Second, the competitive equilibrium is dynamically inefficient in the presence of the consumption externalities. Finally, two kinds of tax scheme, one based on differential environmental taxes and the other based on uniform environmental taxes, are designed to put the economy into the optimal allocation.
This study analyzes the effect of government support on market discipline in an international sample of banks rated by Moody's or Fitch. We also evaluate how a financial crisis and size shape the effect of government support on market discipline. We control for unobservable, country, and time‐specific effects with a panel dataset of banks from 77 countries. Through this comprehensive dataset, we find that government support significantly reduces the market discipline of banks, and this effect is most reflected by an expected increase in charter value. However, market discipline is more pronounced after the 2008 financial crisis and for smaller than bigger banks. These results have important implications for banking regulation and supervision, particularly during a crisis period.
This article revisits the issues of neutrality and separability for a monopolistic firm. It is shown that as long as the monopolistic firm has objectives other than maximizing profit, then in general: (1) profit taxes will not be neutral, and (2) the firm’s production and evasion decisions will not be separable from each other. The authors argue that the nonneutrality result of profit taxes is quite robust; however, there are plausible exceptions to the nonseparability result of profit taxes.
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