On the Neutrality of  Profit Taxation in a Mixed Oligopoly

Abstract

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.

Corporate profit tax, firm entry with unemployment, and income inequality

“…Proposition 1 further confirms the neutrality of corporate profit tax under a given number of manufacturing firms, which is the same with the findings in Panteghini (2001), Kuo et al. (2021), Dong and Wang (2021), and so on.…”

“…The existing literatures on the important issue of income and wage inequality within a general equilibrium setting with Cournot competition are mainly concentrated in trade liberalization and factor mobility (Beladi et al., 2019; Chao et al., 2019; Liu et al., 2019), governmental behaviors (Crettez & Fagart, 2009; 2018a Pi & Zhang, 2018a, 2018b; Beladi et al., 2018; Beladi et al., 2020; Pi & Zhang, 2020), environment regulation (Pan & Zhou, 2013; Pi & Zhang, 2017; Ee et al., 2018a; Pi & Shi, 2019; Kuo et al., 2021), financial market or capital market (Chao et al., 1993; Bumann & Lensink, 2016; Blau, 2018; Pi & Fan, 2020, 2022; Yu & Chao, 2021a), nontradable goods and service economy (Oladi & Beladi, 2009; 2021b Yu & Chao, 2021b, 2021c), corporate social responsibility (Ee et al., 2018b; Pi & Zhao, 2020), and corporate governance (Chao & Wang, 2022).…”

On the Neutrality of Profit Taxation under International Competition

“…1 However, Wu and Yang (2011) pointed out that profit taxation is usually not neutral when firms have objectives other than maximizing profit. Additionally, Kuo et al (2021) further find that the neutrality of profit taxation persists in a mixed oligopolistic market as long as the degree of privatization is endogenously determined. 2 All the aforementioned articles are based on a closed economy scenario.…”

Introduction to the special issue on markets, policies, and economic design: Theory and experiments

“…Kuo et al (2021) consider profit taxation in a mixed oligopoly with one (partially) public firm competing against private firms. The central issue under investigation is the neutrality of profit taxation.…”

“…The paper also discusses how the institutional details of some country-specific tax systems are likely to interact and provide (dis)incentives for tax evasion, in light of the findings of the paper. Kuo et al (2021) consider profit taxation in a mixed oligopoly with one (partially) public firm competing against private firms. The central issue under investigation is the neutrality of profit taxation.…”