Social Efficiency of Market Entry Under Tax Policy

Basak Debasmita and Arijit Mukherjee
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Basak Debasmita: Nottingham University Business School, Nottingham, UK

The B.E. Journal of Economic Analysis & Policy, 2022, vol. 22, issue 3, 601-610

Abstract: We provide a new rationale for socially insufficient market entry. We show that if the shadow cost of public funds is sufficiently high, the number of firms under free entry can be socially insufficient if the tax policies are “time inconsistent”, so that the governments cannot commit to the tax policies before market entry of firms. Hence, strategic tax policies may provide a reason why policymakers should engage in pro-competitive policies. Lump-sum subsidies to firms may be a way to achieve that goal.

Keywords: excessive market entry; insufficient market entry; tax policy (search for similar items in EconPapers)
JEL-codes: L13 L40 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1515/bejeap-2022-0012

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