International Journal of Business and Economics Volume 5, No. 1 April​, 2006

Tax Evasion and Monopoly Output Decisions Revisited: Strategic Firm Behavior

Sang-Ho Lee

Department of Economics, Chonnam National University, Korea

Abstract

This note reexamines the model of tax evasion of the monopolistic firm with profit taxes by incorporating the firm's strategic behavior for tax avoidance. It is shown that under certain conditions, the monopolist's decisions on output and expenditure are no longer separable from the evasion decision and there is a trade-off between production efficiency and cost efficiency. We then derive the optimal profit tax rate to investigate some properties of profit taxation.

Keywords：tax evasion, strategic expenditure, optimal profit taxation.

JEL Classifications：D8, H26.

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