Effective tax rates, endogenous mark-ups and heterogeneous firms
Michael Irlacher () and
Discussion Papers in Economics from University of Munich, Department of Economics
We provide a new explanation why effective tax rates are smaller for larger firms even in the absence of common channels like profit shifting and lobbying. This result emerges in a heterogeneous firms model with endogenous mark-ups. Our framework features imperfect tax pass-through into prices and partial deductibility of production costs. Corporate taxes reduce mark-ups and hence pre-tax profits, especially for high cost firms. As production costs are only partially deductible, high cost producers are affected most by taxes. We further show that shocks which affect mark-ups through competition, like globalization, reinforce the heterogeneity in effective tax rates across firms.
Keywords: Heterogeneous firms; Corporate taxation; Effective tax rate; Linear demand; Endogenous mark-ups (search for similar items in EconPapers)
JEL-codes: H25 F12 L11 (search for similar items in EconPapers)
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Journal Article: Effective tax rates, endogenous mark-ups and heterogeneous firms (2018)
Working Paper: Effective tax rates, endogenous mark-ups and heterogeneous firms (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenec:49717
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