Should tax policy favour high or low productivity firms?

Dominika Langenmayr, Andreas Hau fler and Christian Bauer ()
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Andreas Hau fler: University of Munich and CESifo
Authors registered in the RePEc Author Service: Andreas Haufler

No 1308, Working Papers from Oxford University Centre for Business Taxation

Abstract: Heterogeneous firm productivity raises the question of whether governments should pursue `pick-the-winner' strategies by subsidizing highly productive firms more, or taxing them less, than their less productive counterparts. We study this issue in a setting where governments can set differentiated effective tax rates in an oligopolistic industry where firms with two productivity levels co-exist. We show that the optimal structure of tax differentiation depends critically on the feasible level of the corporate profit tax, which in turn depends on the degree of international tax competition. When tax competition is weak and optimal profit tax rates are high, favouring high-productivity firms is indeed the optimal policy. When tax competition is aggressive and profit taxes are low, however, the optimal tax policy reverses and favours low-productivity firms.

Keywords: business taxation; firm heterogeneity; tax competition (search for similar items in EconPapers)
JEL-codes: F15 H25 H87 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-acc, nep-bec, nep-eff, nep-pbe, nep-pub and nep-tid
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Related works:
Journal Article: Should tax policy favor high- or low-productivity firms? (2015)
Working Paper: Should tax policy favor high- or low-productivity firms? (2012)
Working Paper: Should Tax Policy Favor High- or Low-Productivity Firms? (2012)
Working Paper: Should tax policy favor high- or low-productivity firms? (2012)
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