Economic Integration and the Optimal Corporate Tax Structure with Heterogeneous Firms
|Title:||Economic Integration and the Optimal Corporate Tax Structure with Heterogeneous Firms||Authors:||Bauer, Christian
Davies, Ronald B.
|Permanent link:||http://hdl.handle.net/10197/6391||Date:||Aug-2011||Abstract:||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.||Type of material:||Working Paper||Publisher:||University College Dublin. School of Economics||Keywords:||Corporate tax reform;Trade liberalization;Firm heterogeneity||Language:||en||Status of Item:||Not peer reviewed|
|Appears in Collections:||Economics Working Papers & Policy Papers|
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