Economic Concentration and the Federal Tax Code,
Abstract
This paper has shown how certain provisions of the federal tax code may induce corporate mergers and acquisitions. To the extent that they result in economies of scale or increased efficiency, mergers and acquisitions may be justified from an economic standpoint. However, to the extent that they are solely an attempt to capture tax benefits at the cost of economic concentration, they may not be justifiable from an economic standpoint. It appears that there is a strong correlation between economic concentration and the ability to take advantage of tax benefits, representing an implicit incentive toward economic concentration. This correlation may be due to increased knowledge and specialization of larger firms; it may be due to the financial ability of larger firms to procure higher quality legal and accounting advice; and it may be due to the greater flexibility of larger firms to structure investments to take maximum advantage of tax benefits. Reorganizations and acquisitions may be the most effective device for realizing economies of scale reflecting efforts to develop firms of optimum capacity and optimum combination of inputs. Managerial talent, labor and capital may be more efficiently allocated so that the unit cost of producing an output decreases. Reorganization and acquisition may, in fact, increase competition by cross-subsidizing into industries where market concentration is high and there are barriers to entry.
Document Details
- Document Type
- Technical Report
- Publication Date
- Sep 01, 1984
- Accession Number
- ADA152823
Entities
People
- W. B. Trautman
Organizations
- RAND Corporation