This paper investigates the neutrality of profit taxation in a mixed oligopoly where one (partially) public firm competes with private firms. We find that the neutrality of a profit tax is robust under a general cost and a general demand function as long as the degree of privatization is endogenously determined. This result is also true when product heterogeneity is considered under both Cournot and Bertrand competition. By contrast, if the degree of privatization is exogenously given, the profit tax neutrality holds only in the cases where the public firm is fully privatized or fully state‐owned; otherwise, the neutrality breaks down.

Andreoni, Erard, and Feinstein (1998) suggest that imposing very high penalties for tax evasion is not possible under bankruptcy or limited liability constraints. In this paper, we complement their suggestion by showing that, in the presence of these constraints, imposing very high penalties can make an economy Pareto worse-off. This result helps provide a further insight into why governments typically do not set very high penalties for tax evasion in practice. Implications for optimal deterrence policies in the context of tax evasion are also explored. Copyright 2006 Blackwell Publishing, Inc..

No abstract

No abstract

This paper explores the possibility that fines and tax rates impose different welfare costs on different types of taxpayer, so that the government may want to apply different fine/tax rate treatments to different types of taxpayer. Under the assumption that taxpayers exhibit constant relative risk aversion, we characterize the constrained Pareto-efficient fine/tax rate structure, showing that: (i) the co-existence of compliers (the above-ground economy) and evaders (the underground economy) is typical at the Pareto optimum, and (ii) Pareto efficiency requires compliers to face tax rates no higher and fines no lower than those faced by evaders.