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The B.E. Journal of Theoretical Economics

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Profit Tax Evasion under Wage Bargaining Structure

T.C. Michael Wu
Published Online: 2016-05-17 | DOI: https://doi.org/10.1515/bejte-2014-0090


This paper deals with the neutrality of profit taxes levied on firms as well as the implications of tax evasion in economies with right-to-manage wage formation and efficient bargaining, respectively. Contrary to the outcome under competitive labor markets, we show that profit taxes are not neutral and the firm’s tax evasion decision is not separable from its production decision under right-to-manage wage formation, where a trade union and firm bargain over the wage rate (except in the special case of a monopoly union). A similar conclusion follows from an efficient bargaining model, where a trade union and firm bargain over both the wage rate and employment. In addition, wage bargaining plays an important role in determining the optimal profit tax and the enforcement policy.

Keywords: profit tax evasion; separability; wage bargaining

JEL: D8; H25; H26


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About the article

Published Online: 2016-05-17

Published in Print: 2016-06-01

I gratefully acknowledges the financial support by Ministry of Science and Technology, Taiwan, under grant NSC 101-2410-H-035-010. The usual disclaimer applies.

Citation Information: The B.E. Journal of Theoretical Economics, Volume 16, Issue 2, Pages 817–834, ISSN (Online) 1935-1704, ISSN (Print) 2194-6124, DOI: https://doi.org/10.1515/bejte-2014-0090.

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