Tax Law Commons^™

Tax Planning, Imbalance And Production, Yoseph M. Edrey Prof., Yoram Y. Margaliot, Eyal Sulganik, Rafael Eldor

Yoseph M. Edrey

The paper analyzes the case of tax planning that tilts the government gain/loss ratio below one, and provides a proof of a certain type of inefficiency caused by tax planning. As the paper shows, the tax imbalance distorts the firm's output level, providing the firm with an incentive to produce more than the social optimum. This inefficiency is different from the general inefficiency entailed by income taxation, captured by the conventional notion of excess burden. The paper also examines the determinants of this type of distortion and offers some policy implications.