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Erscheinungsjahr: 
2011
Schriftenreihe/Nr.: 
CESifo Working Paper No. 3566
Verlag: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Zusammenfassung: 
We study the optimal combination of corporate tax rate and tax base in a model of a small open economy with heterogeneous firms. We show that it is optimal for the small country's government to effectively 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.
Schlagwörter: 
corporate tax reform
trade liberalization
firm heterogeneity
JEL: 
H25
H87
F15
Dokumentart: 
Working Paper
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