PRICE CEILING REGULATION OF A TAX EVADING MONOPOLIST

Abstract

This paper uses a simple analytic model to analyze the problem of tax evasion by a monopolist subject to price ceiling regulation. Prior research had explored tax evasion decisions of a monopolist in a non-regulatory environment. However, since monopolies often operate in a regulatory environment, it is important to examine how a regulated monopolist makes its tax reporting decisions. This paper shows that under certain conditions, an increase in the effective price ceiling increases tax evasion. The production decision of the monopolist however is unaffected by tax evasion parameters. A social planner, attempting to maximize social welfare, subject to a revenue constraint, can achieve optimality in a number of ways; with or without full compliance.

Citation

Sengupta, P. (2003), "PRICE CEILING REGULATION OF A TAX EVADING MONOPOLIST", Research in Finance (Research in Finance, Vol. 20), Emerald Group Publishing Limited, Leeds, pp. 19-32. https://doi.org/10.1016/S0196-3821(03)20002-2