Tax Evasion and Competition

24 Pages Posted: 2 Oct 2007

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Marco Runkel

University of Munich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2007

Abstract

Using a Cournot oligopoly model with an endogenous number of firms and evasion of indirect taxes, this paper shows that more intense competition may have the negative side-effect of eroding tax revenues by increasing tax evasion. This will be the case if market entry costs decrease. A similar result will hold if marginal production costs fall and demand is either weakly concave or convex and inelastic. The desirable result of more competition, less evasion and higher tax revenues will be obtained if (a) marginal production costs fall and demand is convex and elastic or (b) the demand elasticity increases.

Keywords: competition, firms, market power, tax evasion, tax revenues

JEL Classification: H25, H26, L13, L51

Suggested Citation

Goerke, Laszlo and Runkel, Marco, Tax Evasion and Competition (September 2007). CESifo Working Paper No. 2104, Available at SSRN: https://ssrn.com/abstract=1018596

Laszlo Goerke (Contact Author)

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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IZA Institute of Labor Economics

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Marco Runkel

University of Munich - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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