Arbeitspapier
Economic integration and the optimal corporate tax structure with heterogeneous firms
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 effectively 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.
- Language
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Englisch
- Bibliographic citation
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Series: UCD Centre for Economic Research Working Paper Series ; No. WP11/15
- Classification
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Wirtschaft
Business Taxes and Subsidies including sales and value-added (VAT)
International Fiscal Issues; International Public Goods
Economic Integration
- Subject
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corporate tax reform
trade liberalization
firm heterogeneity
- Event
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Geistige Schöpfung
- (who)
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Bauer, Christian
Davies, Ronald B.
Haufler, Andreas
- Event
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Veröffentlichung
- (who)
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University College Dublin, UCD School of Economics
- (where)
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Dublin
- (when)
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2011
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Bauer, Christian
- Davies, Ronald B.
- Haufler, Andreas
- University College Dublin, UCD School of Economics
Time of origin
- 2011
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