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Profit Tax Evasion under Wage Bargaining Structure

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  • Wu T.C. Michael

    (Department of Public Finance, Feng Chia University, Taichung 40724, Taiwan, ROC)

Abstract

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.

Suggested Citation

  • Wu T.C. Michael, 2016. "Profit Tax Evasion under Wage Bargaining Structure," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(2), pages 817-834, June.
    • Handle: RePEc:bpj:bejtec:v:16:y:2016:i:2:p:817-834:n:2
    DOI: 10.1515/bejte-2014-0090
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    References listed on IDEAS

    as
    1. Bigio, Saki & Zilberman, Eduardo, 2011. "Optimal self-employment income tax enforcement," Journal of Public Economics, Elsevier, vol. 95(9), pages 1021-1035.
    2. Goerke, Laszlo, 1996. "Taxes on Payroll, Revenues and Profits in Three Models of Collective Bargaining," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(5), pages 549-565, November.
    3. Florian Baumann & Tim Friehe, 2010. "Tax Evasion, Investment, and Firm Activity," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(1), pages 1-14, March.
    4. Goerke, Laszlo, 1996. "Taxes on Payroll, Revenues and Profits in Three Models of Collective Bargaining," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(5), pages 549-565, November.
    5. Marrelli, M. & Martina, R., 1988. "Tax evasion and strategic behaviour of the firms," Journal of Public Economics, Elsevier, vol. 37(1), pages 55-69, October.
    6. Thomas Grandner, 2006. "A Note on Franchising and Wage Bargaining," Journal of Economics, Springer, vol. 87(3), pages 281-293, April.
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    Cited by:

    1. Martínez-de-Albéniz, Victor & Belkaid, Abdel, 2021. "Here comes the sun: Fashion goods retailing under weather fluctuations," European Journal of Operational Research, Elsevier, vol. 294(3), pages 820-830.

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    More about this item

    Keywords

    profit tax evasion; separability; wage bargaining;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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