Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/191672
Authors: 
Irlacher, Michael
Unger, Florian
Year of Publication: 
2018
Series/Report no.: 
Munich Discussion Paper 2018-6
Abstract: 
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.
Subjects: 
Heterogeneous firms
Corporate taxation
Effective tax rate
Linear demand
Endogenous mark-ups
JEL: 
H25
F12
L11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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