Affiliation:
1. Zhongnan University of Economics and Law
Abstract
Abstract
In this paper, in a general equilibrium setting, we address the issue of collaborative profit tax evasion in a given number of homogenous Cournot oligopoly with the consensus of unskilled workers, wherein the profit-maximizing firm is over-reporting the wage payment to evade the corporate profit tax and the unskilled labor receives a part of cost-saving ex-ante. We show that (1) When there is collaborative profit tax evasion in industrial sector, the behavior of over-reporting production cost will incentivize manufacturing firms to produce more, thereby raise capital rental rate and skilled labor wage, while decrease unskilled labor wage; (2) A higher wage-saving sharing ratio will increase the total output of agricultural sector and decrease the output per firm in industrial sector which results in widening wage inequality and exacerbating income distribution, while narrowing income inequality and wage gap within industrial sector.
JEL Classifications: J31, O18, H25
Publisher
Research Square Platform LLC
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