IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Should tax policy favour high or low productivity firms?

  • Dominika Langenmayr

    ()

    (University of Munich)

  • Andreas Hau fler

    (University of Munich and CESifo)

  • Christian J. Bauer

    ()

    (University of Munich and CESifo)

Heterogeneous firm productivity raises the question of whether governments should pursue `pick-the-winner' strategies by subsidizing highly productive firms more, or taxing them less, than their less productive counterparts. We study this issue in a setting where governments can set differentiated effective tax rates in an oligopolistic industry where firms with two productivity levels co-exist. We show that the optimal structure of tax differentiation depends critically on the feasible level of the corporate profit tax, which in turn depends on the degree of international tax competition. When tax competition is weak and optimal profit tax rates are high, favouring high-productivity firms is indeed the optimal policy. When tax competition is aggressive and profit taxes are low, however, the optimal tax policy reverses and favours low-productivity firms.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Working_Papers/Series_13/WP1308.pdf
Download Restriction: no

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1308.

as
in new window

Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:btx:wpaper:1308
Contact details of provider: Postal: Park End Street, Oxford OX1 1HP UK
Phone: +44 (0)1865 288800
Fax: +44 (0)1865 288805
Web page: http://www.sbs.ox.ac.uk/ideas-impact/tax/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Aghion, Philippe & Dewatripont, Mathias & Du, Liqun & Harrison, Ann & Legros, Patrick, 2011. "Industrial Policy and Competition," CEPR Discussion Papers 8619, C.E.P.R. Discussion Papers.
  2. Qing Hong & Michael Smart, 2007. "In Praise of Tax Havens: International Tax Planning and Foreign Direct Investment," CESifo Working Paper Series 1942, CESifo Group Munich.
  3. Peter Egger & Wolfgang Eggert & Hannes Winner, 2007. "Saving Taxes Through Foreign Plant Ownership," CESifo Working Paper Series 1887, CESifo Group Munich.
  4. Haufler, Andreas & Mittermaier, Ferdinand, 2008. "Unionisation triggers tax incentives to attract foreign direct investment," Discussion Papers in Economics 3752, University of Munich, Department of Economics.
  5. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete over Corporate Tax Rates?," CEPR Discussion Papers 3400, C.E.P.R. Discussion Papers.
  6. Cremer, Helmuth & Gahvari, Firouz, 2000. "Tax evasion, fiscal competition and economic integration," European Economic Review, Elsevier, vol. 44(9), pages 1633-1657, October.
  7. Alan Auerbach & Michael P. Devereux & Helen Simpson, 2007. "Taxing Corporate Income," CESifo Working Paper Series 2139, CESifo Group Munich.
  8. Eric J. Bartelsman & Mark Doms, 2000. "Understanding productivity: lessons from longitudinal microdata," Finance and Economics Discussion Series 2000-19, Board of Governors of the Federal Reserve System (U.S.).
  9. Mihir A. Desai & C. Fritz Foley & James R. Hines, Jr., 2003. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," NBER Working Papers 9715, National Bureau of Economic Research, Inc.
  10. Elsayyad, May & Konrad, Kai A., 2012. "Fighting multiple tax havens," Journal of International Economics, Elsevier, vol. 86(2), pages 295-305.
  11. Sebastian Krautheim & Tim Schmidt-Eisenlohr, 2009. "Heterogeneous Firms, "Profit Shifting" FDI and International Tax Competition," Documents de travail du Centre d'Economie de la Sorbonne 09073, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  12. Long, Ngo Van & Raff, Horst & Stähler, Frank, 2011. "Innovation and trade with heterogeneous firms," Journal of International Economics, Elsevier, vol. 84(2), pages 149-159, July.
  13. Bauer, Christian & Langenmayr, Dominika, 2011. "Sorting into Outsourcing: Are Profits Taxed at a Gorilla's Arm's Length?," Discussion Papers in Economics 12312, University of Munich, Department of Economics.
  14. Karacaovali, Baybars, 2006. "Productivity matters for trade policy : theory and evidence," Policy Research Working Paper Series 3925, The World Bank.
  15. PERALTA, Susana & WAUTHY, Xavier & VAN YPERSELE, Tanguy, . "Should countries control international profit shifting?," CORE Discussion Papers RP -1795, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Pflüger, Michael P. & Suedekum, Jens, 2009. "Subsidizing Firm Entry in Open Economies," IZA Discussion Papers 4384, Institute for the Study of Labor (IZA).
  17. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  18. Ronald B. Davies & Carsten Eckel, 2010. "Tax Competition for Heterogeneous Firms with Endogenous Entry," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 77-102, February.
  19. Baldwin, Richard & Okubo, Toshihiro, 2009. "Tax reform, delocation and heterogeneous firms," CEPR Discussion Papers 7340, C.E.P.R. Discussion Papers.
  20. A. Klemm & S. Van Parys, 2010. "Empirical Evidence on the Effects of Tax Incentives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/673, Ghent University, Faculty of Economics and Business Administration.
  21. Slemrod, Joel & Wilson, John D., 2009. "Tax competition with parasitic tax havens," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1261-1270, December.
  22. Richard Baldwin & Toshihiro Okubo, 2005. "Heterogeneous Firms, Agglomeration and Economic Geography: Spatial Selection and Sorting," NBER Working Papers 11650, National Bureau of Economic Research, Inc.
  23. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
  24. Christian Bauer & Ronald B Davies & Andreas Haufler, 2011. "Economic integration and the optimal corporate tax structure with heterogeneous firms," Working Papers 201115, School Of Economics, University College Dublin.
  25. Dominika Langenmayr & Andreas Haufler & Christian Josef Bauer, 2012. "Should Tax Policy Favor High- or Low-Productivity Firms?," CESifo Working Paper Series 4034, CESifo Group Munich.
  26. Haufler, Andreas & Stähler, Frank, 2009. "Tax competition in a simple model with heterogeneous firms: How larger markets reduce profit taxes," Discussion Papers in Economics 11120, University of Munich, Department of Economics.
  27. Janeba, Eckhard & Peters, Wolfgang, 1999. "Tax Evasion, Tax Competition and the Gains from Nondiscrimination: The Case of Interest Taxation in Europe," Economic Journal, Royal Economic Society, vol. 109(452), pages 93-101, January.
  28. Haufler, Andreas & Wooton, Ian, 2010. "Competition for firms in an oligopolistic industry: The impact of economic integration," Munich Reprints in Economics 19925, University of Munich, Department of Economics.
  29. Johannesen, Niels, 2012. "Optimal fiscal barriers to international economic integration in the presence of tax havens," Journal of Public Economics, Elsevier, vol. 96(3), pages 400-416.
  30. Buettner, Thiess & Overesch, Michael & Schreiber, Ulrich & Wamser, Georg, 2012. "The impact of thin-capitalization rules on the capital structure of multinational firms," Journal of Public Economics, Elsevier, vol. 96(11), pages 930-938.
  31. Fuest, Clemens, 2005. "Economic integration and tax policy with endogenous foreign firm ownership," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1823-1840, September.
  32. Keen, Michael, 2001. "Preferential Regimes Can Make Tax Competition Less Harmful," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 757-62, December.
  33. Desai, Mihir A. & Foley, C. Fritz & Hines, James Jr., 2006. "The demand for tax haven operations," Journal of Public Economics, Elsevier, vol. 90(3), pages 513-531, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:btx:wpaper:1308. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dongxian Guo)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.