|Bauer, Christian; Davies, Ronald B.; Haufler, Andreas (August 2011): Economic integration and the optimal corporate tax structure with heterogeneous firms. Discussion Papers in Economics 2011-14|
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.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||corporate tax reform, trade liberalization, firm heterogeneity|
Economics > Munich Discussion Papers in Economics
Economics > Chairs > Seminar for Economic Policy
|Subjects:||300 Social sciences > 300 Social sciences, sociology and anthropology|
300 Social sciences > 330 Economics
|JEL Classification:||H25, H87, F15|
|Deposited On:||05. Sep 2011 12:42|
|Last Modified:||02. May 2016 07:04|
Auerbach, A.J., Devereux, M.P., Simpson, H. (2010). Taxing corporate income. In: J. Mirrlees, S. Adam, T. Besley, R. Blundell, S. Bond, R. Chote, M. Gammie, P. Johnson, G. Myles and J. Poterba (eds), Dimensions of Tax Design: the Mirrlees Review, Oxford University Press, Chapter 9, 837-893.
Baldwin, R., Okubo, T. (2009). Tax reform, delocation and heterogeneous firms. Scandinavian Journal of Economics 111, 741-764.
Bergstrand, J.H., Egger, P. (2007). A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises. Journal of International Economics 73, 278-308.
Broda, C., Weinstein, D. (2006). Globalization and the gains from variety. Quarterly Journal of Economics 121, 541-585.
Chor, D., (2009). Subsidies for FDI. Implications from a model with heterogeneous firms. Journal of International Economics 78, 113-125.
Cole, M., (forthcoming). The choice of modeling firm heterogeneity and trade restrictions. Review of World Economics.
Cole, M. and R. Davies (2011). Optimal tariffs, tariff jumping, and heterogeneous firms. European Economic Review 55, 480-496.
Davies, R., Eckel, C. (2010). Tax competition for heterogeneous firms with endogenous entry. American Economic Journal: Economic Policy 2, 77-102.
Demidova, S., Rodriguez-Clare, A. (2009). Trade policy under firm-level heterogeneity in a small economy. Journal of International Economics 78, 100-112.
Devereux, M.P., Gri±th, R., Klemm, A. (2002). Corporate income tax reforms and international tax competition. Economic Policy 35, 451-495.
Devereux, M.P., Lockwood, B., Redoano, M. (2008). Do countries compete over corporate tax rates? Journal of Public Economics 92, 1210-1235.
Egger, P., Ra®, H. (2007). Tax rate and tax base competition for foreign direct investment. Mimeo.
European Central Bank (2006). Financial stability review (December). Frankfurt.
Finke, K., Heckemeyer, J., Reister, T., Spengel, Ch. (2010). Impact of tax rate cut cum base broadening reforms on heterogeneous firms. ZEW Discussion Paper No. 10-036. Mannheim.
Flam, H., Helpman, E. (1987). Industrial policy under monopolistic competition. Journal of International Economics 22, 79-102.
Fuest, C., Hemmelgarn, T. (2005). Corporate tax policy, foreign firm ownership and thin capitalization. Regional Science and Urban Economics 35, 508-526.
Fuest, C., Huber, B., Mintz, J., 2005. Capital mobility and tax competition. Foundations and Trends in Microeconomics 1:1. Boston and Delft: Now Publishers.
Haufler, A., Schjelderup, G. (2000). Corporate tax systems and cross country profit shifting. Oxford Economic Papers 52, 306-325.
Helpman, E., Melitz, M., Yeaple, S. (2004). Export versus FDI with heterogeneous firms. American Economic Review 94, 300-316.
Jorgensen, J., and P. Schröder (2008). Fixed export cost heterogeneity, trade and welfare. European Economic Review 52, 1256-1274.
Keen, M., Klemm, A., Perry, V. (2010). Tax and the crisis. Fiscal Studies 31, 43-79.
Klemm, A., van Parys, S. (2009). Empirical evidence on the effects of tax incentives. IMF Working Paper No. 09/136. Washington, DC.
Krautheim, S., Schmidt-Eisenlohr, T. (2011). Heterogenous firms, `profit shifting' FDI and international tax competition. Journal of Public Economics 95, 122-133.
Meade Committee (1978). The structure and reform of direct taxation. Allen and Unwin, London.
Melitz, M. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71, 1695-1725.
OECD (2008). Revenue Statistics 1965-2007. Paris. P°Äuger, M., SÄudekum, J. (2009). Subsidizing firm entry in open economies. IZA Discussion Paper No. 4384. Bonn.
Sörensen, P.B. (1995). Changing views of the corporate income tax. National Tax Journal 48, 279-295.
Available Versions of this Item
Economic integration and the optimal corporate tax structure with heterogeneous firms. (deposited 15. Apr 2014 08:56)
- Economic integration and the optimal corporate tax structure with heterogeneous firms. (deposited 05. Sep 2011 12:42) [Currently Displayed]