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||Start page:||1||End page:||36||Series/Report no.:||UCD Centre for Economic Research Working Paper Series; WP11/15||Keywords:||Corporate tax reform; Trade liberalization; Firm heterogeneity||Other versions:||http://www.ucd.ie/t4cms/WP11_15.pdf||Language:||en||Status of Item:||Not peer reviewed|
|Appears in Collections:||Economics Working Papers & Policy Papers|
Show full item record
This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.