Template-Type: ReDIF-Paper 1.0
Author-Name:  Simone Moriconi
Author-X-Name-First: Simone
Author-X-Name-Last: Moriconi
Author-Email: simone.moriconi@unicatt.it
Author-Workplace-Name: DISCE,Università Cattolica
Title: Taxation and Incomplete Contracts
Abstract: This paper analyzes the impact of taxation on economic efficiency when contracts are incomplete, firms operate in a perfect competitive market and can choose between integrated or non-integrated governance to cope with contract incompleteness. Taxation reduces incentives to pursue intra-firm coordination, thus the efficiency of firm's production process under non-integration. This is not the case under integration, since production decisions are transferred to the Headquarters, at a fixed integration cost. Taxation may then induce firms to change their organization at the industry equilibrium. We show that a tax that induces firms to choose integration rather than non-integration may serve a corrective function if integration costs and market prices are not too high.
Length: 32 pages
Creation-Date: 2012-07
Publication-Status: none
File-URL: http://istituti.unicatt.it/teoria_economica_metodi_quantitativi_itemq1263.pdf
File-Format: Application/pdf
File-Function: First version, 2012
Number: itemq1263
Classification-JEL: H21; L22; H32.
Keywords: taxation; incomplete contracts; economic efficiency
Handle: RePEc:ctc:serie6:itemq1263