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Managerial Firms, Taxation and Welfare

Simone Moriconi and Tuna Abay ()
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Tuna Abay: European University Institute

Working Papers from IESEG School of Management

Abstract: This paper investigates the welfare properties of an economy where firms are man- agerial, i.e., composed of two complementary units, each run by its own manager. We show that in the market equilibrium, welfare is generally lower in the case of managerial firms than in that of standard production firms due to the private costs that managers bear to coordinate their operating decisions within the firm. In this organizational set- ting, we also derive a number of interesting results regarding the welfare effects of tax- ation. We show that while a lump-sum tax is welfare-neutral, a nonlump-sum tax may have negative, positive or zero net effect on welfare, depending on market conditions, tax levels, and the structure of managerial incentives. In some cases, these welfare ef- fects are due to ‘tax-induced’ changes in the ownership structure of firms in the industry equilibrium.

Keywords: : managerial firms; welfare; taxation (search for similar items in EconPapers)
JEL-codes: D21 D60 H21 L23 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2022-03
New Economics Papers: this item is included in nep-cwa and nep-pub
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