Economic integration and the optimal corporate tax structure with heterogeneous firms

Christian Bauer (), Ronald Davies and Andreas Haufler

Journal of Public Economics, 2014, vol. 110, issue C, 42-56

Abstract: This paper links recent tax-rate-cut-cum-base-broadening reforms of corporate taxation to the closer integration of international trade. We study the corporate tax structure in a small open economy with heterogeneous firms, in a setting where it is optimal to 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.

Keywords: Corporate tax reform; Trade liberalization; Firm heterogeneity (search for similar items in EconPapers)
JEL-codes: F15 H25 H87 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Related works:
Working Paper: Economic integration and the optimal corporate tax structure with heterogeneous firms (2014)
Working Paper: Economic integration and the optimal corporate tax structure with heterogeneous firms (2011)
Working Paper: Economic Integration and the Optimal Corporate Tax Structure with Heterogeneous Firms (2011)
Working Paper: Economic integration and the optimal corporate tax structure with heterogeneous firms (2011)
Working Paper: Economic integration and the optimal corporate tax structure with heterogeneous firms (2011)
Working Paper: Economic Integration and the Optimal Corporate Tax Structure with Heterogeneous Firms (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:110:y:2014:i:c:p:42-56

DOI: 10.1016/j.jpubeco.2013.12.001

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