Economic integration and the optimal corporate tax structure with heterogeneous firms

Christian J. Bauer, Ronald Davies and Andreas Haufler

Munich Reprints in Economics from University of Munich, Department of Economics

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.

Date: 2014
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Citations: View citations in EconPapers (28)

Published in Journal of Public Economics 110(2014): pp. 42-56

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Related works:
Journal Article: 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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