|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:||11. Feb 2015 21:00|
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