Evolutionary competition and profit taxes: market stability versus tax burden

Noemi Schmitt and Frank Westerhoff

No 104, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: The seminal cobweb model by Brock and Hommes reveals that fixed-point dynamics may turn into increasingly complex dynamics as firms switch more quickly between competing expectation rules. While policy-makers may be able to manage such rational routes to randomness by imposing a proportional profit tax, the stability-ensuring tax rate may cause a very high tax burden for firms. Using a mix of analytical and numerical tools, we show that a rather small profit-dependent lump-sum tax may even be sufficient to take away the competitive edge of cheap destabilizing expectation rules, thereby contributing to market stability.

Keywords: cobweb models; discrete choice approach; intensity of choice; profit taxes; tax burden; stability analysis (search for similar items in EconPapers)
JEL-codes: D84 E30 Q11 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-dcm, nep-evo, nep-mac and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Journal Article: EVOLUTIONARY COMPETITION AND PROFIT TAXES: MARKET STABILITY VERSUS TAX BURDEN (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:104

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