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Taxation, industry integration and production efficiency

Simone Moriconi

No def043, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: Taxes levied on production processes (e.g. VAT), are today a very important source of government revenues in developed economies. Theories of optimal taxation conclude that these taxes are detrimental to production efficiency, when firms operate in perfectly competitive markets. These theories draw on the neoclassical approach, which regards firms as single production units. The present paper investigates the effects of taxation on production efficiency, accounting for the organization of an industry. The model shows that a lump-sum tax does not have any effect on the organization of the industry, while a non lump-sum tax can be designed that induces an organizational change of the industry. The paper shows that the effect of this ”tax induced organizational change” on production efficiency ultimately depends on the characteristics of the market.

Keywords: taxation; organizational change; vertical integration; and production efficiency. (search for similar items in EconPapers)
JEL-codes: H21 H32 L22 (search for similar items in EconPapers)
Pages: 57
Date: 2016-06
New Economics Papers: this item is included in nep-acc, nep-net, nep-pbe and nep-pub
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http://dipartimenti.unicatt.it/economia-finanza-def043.pdf First version, 2016 (application/pdf)

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Working Paper: Taxation, Industry Integration and Production Efficiency (2016) Downloads
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