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
Englisch

Bibliographic citation
Series: Munich Discussion Paper ; No. 2011-14

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
Besteuerungsverfahren
Optimale Besteuerung
Kleine offene Volkswirtschaft
Handelsliberalisierung
Wirtschaftsintegration
Produktivität
Theorie

Event
Geistige Schöpfung
(who)
Bauer, Christian
Davies, Ronald B.
Haufler, Andreas
Event
Veröffentlichung
(who)
Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
(where)
München
(when)
2011

DOI
doi:10.5282/ubm/epub.12310
Handle
URN
urn:nbn:de:bvb:19-epub-12310-6
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Bauer, Christian
  • Davies, Ronald B.
  • Haufler, Andreas
  • Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät

Time of origin

  • 2011

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