Economic concentration and the federal tax code

by William B. Trautman

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This paper examines some ways in which 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. In a period of high federal government deficits, which must be financed at high real interest rates, it becomes especially important to look critically at the costs and effects of certain provisions of the federal tax code.

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