Effective tax rates, endogenous mark-ups and heterogeneous firms

Arbeitspapier

We provide a new explanation why effective tax rates are smaller for larger firms even in the absence of common channels like profit shifting and lobbying. This result emerges in a heterogeneous firms model with endogenous mark-ups. Our framework features imperfect tax pass-through into prices and partial deductibility of production costs. Corporate taxes reduce mark-ups and hence pre-tax profits, especially for high cost firms. As production costs are only partially deductible, high cost producers are affected most by taxes. We further show that shocks which affect mark-ups through competition, like globalization, reinforce the heterogeneity in effective tax rates across firms.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Munich Discussion Paper ; No. 2018-6

Classification and Topics

• Classification: Wirtschaft ; Business Taxes and Subsidies including sales and value-added (VAT) ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Production, Pricing, and Market Structure; Size Distribution of Firms
• Subject: Heterogeneous firms ; Corporate taxation ; Effective tax rate ; Linear demand ; Endogenous mark-ups

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Irlacher, Michael ; Unger, Florian
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
• (where): München
• (when): 2018

Further information

• DOI: doi:10.5282/ubm/epub.49717
• Handle: http://hdl.handle.net/10419/191672
• URN: urn:nbn:de:bvb:19-epub-49717-5
• Last update: 10.03.2025, 11:44 AM CET