Tax Evasion and Unions in a Cournot duopoly

Luciano Fanti and Domenico Buccella

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

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.

Keywords: Tax Evasion; Sales Tax; Cournot duopoly; Unions (search for similar items in EconPapers)
JEL-codes: H20 H25 H26 J5 (search for similar items in EconPapers)
Date: 2020-12-01
New Economics Papers: this item is included in nep-iue, nep-pbe and nep-pub
Note: ISSN 2039-1854
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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2020/266

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