Social Efficiency of Market Entry Under Tax Policy

Basak, Debasmita; Mukherjee, Arijit

Abstract

We provide a new rationale for socially insufficient market entry. We show that if the shadow cost of public funds is sufficiently high, the number of firms under free entry can be socially insufficient if the tax policies are "time inconsistent", so that the governments cannot commit to the tax policies before market entry of firms. Hence, strategic tax policies may provide a reason why policymakers should engage in pro-competitive policies. Lump-sum subsidies to firms may be a way to achieve that goal.

Citation

Basak, D., & Mukherjee, A. (2022). Social Efficiency of Market Entry Under Tax Policy. B.E. Journal of Economic Analysis and Policy, 22(3), 601-610. https://doi.org/10.1515/bejeap-2022-0012

• Journal Article Type: Article
• Acceptance Date: Apr 12, 2022
• Online Publication Date: May 2, 2022
• Publication Date: 2022-07
• Deposit Date: Apr 13, 2022
• Publicly Available Date: May 3, 2023
• Journal: B.E. Journal of Economic Analysis and Policy
• Electronic ISSN: 1555-0494
• Publisher: De Gruyter
• Peer Reviewed: Peer Reviewed
• Volume: 22
• Issue: 3
• Pages: 601-610
• DOI: https://doi.org/10.1515/bejeap-2022-0012
• Keywords: Economics, Econometrics and Finance (miscellaneous); Economics and Econometrics
• Public URL: https://nottingham-repository.worktribe.com/output/7759120
• Publisher URL: https://www.degruyter.com/document/doi/10.1515/bejeap-2022-0012/html