Template-Type: ReDIF-Paper 1.0

Author-Name: Dominika Langenmayr 
Author-X-Name-First: Dominika 
Author-X-Name-Last: Langenmayr

Author-Name: Andreas Haufler
Author-X-Name-First: Andreas
Author-X-Name-Last: Haufler

Author-Name: Christian J. Bauer
Author-X-Name-First: Christian J. 
Author-X-Name-Last: Bauer

Title: Should tax policy favor high- or low-productivity firms?

	
Abstract: Heterogeneous firm productivity seems to provide an argument for governments to pursue `pick-the-winner' strategies by subsidizing highly productive firms more, or taxing them less, than their less productive counterparts. We appraise
this argument by studying the optimal choice of effective tax rates in an oligopolistic industry with heterogeneous firms. We show that the optimal structure of tax differentiation depends critically on the feasible level of corporate profit taxes, which in turn depends on the degree of international tax competition. When tax competition is moderate and profit taxes are high, favoring
high-productivity firms is indeed the optimal policy. When tax competition is aggressive and profit taxes are low, however, the optimal tax policy is reversed and low-productivity firms are tax-favored.

Length: 29 pages

Creation-Date:  2012-12

File-URL: http://www.bgpe.de/texte/DP/130_LangenmayrHauflerBauer.pdf
File-Format: Application/pdf

File-Function: First version, 2012

Number: 130

Classification-JEL: H25, H87, F15

Keywords: business taxation, firm heterogeneity, tax competition

Handle: RePEc:bav:wpaper:130_LangenmayrHauflerBauer