Tax competition in a simple model with heterogeneous firms: How larger markets reduce profit Taxes

Andreas Haufler and Frank Stähler

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

Abstract: We set up a simple two-country model of tax competition where firms with different productivity decide in which location to produce and sell output. In this model, a unique, asymmetric Nash equilibrium is shown to exist, provided that countries are sufficiently different with respect to their exogenous market size. Sorting of firms occurs in equilibrium, as the smaller country levies the lower tax rate and attracts the low-cost firms. A simultaneous expansion of both markets that raises the profitability of firms intensifies tax competition and causes both countries to reduce their tax rates, despite higher corporate tax bases.

Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (53)

Published in International Economic Review 2 54(2013): pp. 665-692

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: TAX COMPETITION IN A SIMPLE MODEL WITH HETEROGENEOUS FIRMS: HOW LARGER MARKETS REDUCE PROFIT TAXES (2013)
Working Paper: Tax competition in a simple model with heterogeneous firms: How larger markets reduce profit taxes (2010)
Working Paper: Tax Competition in a Simple Model with Heterogeneous Firms: How Larger Markets Reduce Profit Taxes (2009)
Working Paper: Tax competition in a simple model with heterogeneous firms: How larger markets reduce profit taxes (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:20412

Access Statistics for this paper

More papers in Munich Reprints in Economics from University of Munich, Department of Economics Ludwigstr. 28, 80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Tamilla Benkelberg ().