CORPORATE-TAXATION, INCUMBENCY ADVANTAGE AND ENTRY

It is the purpose of this paper to show that corporation tax may affec t industrial structure. Analyzing the effects of corporation tax, we d emonstrate that it tends to favour incumbents over entrants. We furthe r show that the effect of this advantage on an incumbent's output depe nds on his profit or loss history. An incumbent with a past profit is likely to produce a greater output, thereby partially or fully crowdin g out an entrant's output. In contrast, an incumbent with a past loss is more likely to produce a smaller output, making entry easier.