Economic integration and the optimal corporate tax structure with heterogeneous firms

Bauer, Christian; Davies, Ronald B. und Haufler, Andreas (August 2011): Economic integration and the optimal corporate tax structure with heterogeneous firms. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2011-14

Abstract

We study the optimal combination of corporate tax rate and tax base in a model of a small open economy with heterogeneous firms. We show that it is optimal for the small country's government to e®ectively subsidize capital inputs by granting a tax allowance in excess of the true costs of capital. Economic integration reduces the optimal capital subsidy and drives low-productivity firms from the small country's home market, replacing them with high-productivity exporters from abroad. This endogenous policy response creates a selection effect that increases the average productivity of home firms when trade barriers fall, in addition to the well-known direct effects.

• Dokumententyp: Paper
• Keywords: corporate tax reform, trade liberalization, firm heterogeneity
• Fakultät: Volkswirtschaft ; Volkswirtschaft > Munich Discussion Papers in Economics ; Volkswirtschaft > Lehrstühle > Seminar für Wirtschaftspolitik
• Themengebiete: 300 Sozialwissenschaften > 300 Sozialwissenschaft, Soziologie ; 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: H25, H87, F15
• Sprache: Englisch

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