Arbeitspapier

Economic integration and the optimal corporate tax structure with heterogeneous firms

to connected objects

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: Englisch

Bibliographic citation: Series: CESifo Working Paper ; No. 3566

Classification: Wirtschaft
Business Taxes and Subsidies including sales and value-added (VAT)
International Fiscal Issues; International Public Goods
Economic Integration

Subject: corporate tax reform
trade liberalization
firm heterogeneity
Unternehmensbesteuerung
Steuerbemessung
Optimale Besteuerung
Kleines-offenes-Land
Außenhandelsliberalisierung
Wirtschaftsintegration
Produktivität
Theorie

Event: Geistige Schöpfung

(who): Bauer, Christian
Davies, Ronald B.
Haufler, Andreas

Event: Veröffentlichung

(who): Center for Economic Studies and ifo Institute (CESifo)

(where): Munich

(when): 2011

Handle: http://hdl.handle.net/10419/49517

Last update: 10.03.2025, 11:41 AM CET

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Object type

Arbeitspapier

Associated

Bauer, Christian
Davies, Ronald B.
Haufler, Andreas
Center for Economic Studies and ifo Institute (CESifo)

Time of origin

2011

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