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Sunk Costs and Profit Taxation: A

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  • Panteghini, Paolo M

Abstract

This paper uses a two-period Von Stackelberg model to study the effects of profit taxation on the behavior of a monopolist when the entry of a potential competitor is threatened. A barrier to entry, consisting of a sunk cost, is assumed. If the potential competitor decides to enter, thus making a loss, deduction is allowed in the following period. This model shows that these tax deductions can make profit taxation be distortive. Copyright 1996 by Scottish Economic Society.

Suggested Citation

  • Panteghini, Paolo M, 1996. "Sunk Costs and Profit Taxation: A," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(1), pages 85-98, February.
    • Handle: RePEc:bla:scotjp:v:43:y:1996:i:1:p:85-98
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    Cited by:

    1. Leonard F. S. Wang & Ji Sun, 2023. "Corporate profit tax, firm entry with unemployment, and income inequality," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 380-392, April.

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