Corporation Tax Asymmetries: An Oligopolistic Supergame Analysis

Pierre-Pascal Gendron

Working Papers from University of Toronto, Department of Economics

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.

JEL-codes: C72 H25 (search for similar items in EconPapers)
Pages: 31 pages
Date: 1996-07-08
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Citations: View citations in EconPapers (1)

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