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Abstract
This paper links recent tax-rate-cut-cum-base-broadening reforms of corporate taxation to the closer integration of international trade. We study the corporate tax structure in a small open economy with heterogeneous firms, in a setting where it is optimal to 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: | Journal article |
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Faculties: | Economics Economics > Chairs > Seminar for Economic Policy |
Subjects: | 300 Social sciences > 330 Economics |
Language: | English |
Item ID: | 20123 |
Date Deposited: | 15. Apr 2014, 08:56 |
Last Modified: | 04. Nov 2020, 13:01 |
Available Versions of this Item
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Economic integration and the optimal corporate tax structure with heterogeneous firms. (deposited 15. Apr 2014, 08:56)
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Economic integration and the optimal corporate tax structure with heterogeneous firms. (deposited 05. Sep 2011, 12:42)
- Economic integration and the optimal corporate tax structure with heterogeneous firms. (deposited 15. Apr 2014, 08:56) [Currently Displayed]
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Economic integration and the optimal corporate tax structure with heterogeneous firms. (deposited 05. Sep 2011, 12:42)