Firms with heterogeneous profitability: An argument for pick-the-winner strategies in tax and competition policy?

• Applicant: Professor Dr. Andreas Haufler
• Subject Area: Economic Policy, Applied Economics
• Term: from 2009 to 2015
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 159807519

• Final Report Year: 2015

Final Report Abstract

The goal of this research project was to analyze the implications of firm heterogeneity for tax and industrial policies. Our objective is twofold. First, by exploiting the effects of firm heterogeneity, we aimed at achieving a better understanding of the link between tax policies, firm behavior, and tax revenues. Second, we asked if heterogeneous firm models, which predict the endogenous selection into exporting and FDI according to a firm’s productivity level, provide new arguments for discriminating strategies in tax and industrial policies. In the area of tax policy, we undertook three core projects. The first project asked if the factual preferential tax treatment of multinational companies can be explained by the fact that these firms are, on average, more productive than nationally operating firms. In the second project, we analyzed to what extent recent tax-rate-cut-cum-base-broadening reforms in many OECD countries can be explained as an attempt of optimizing governments to attract the most profitable firms. The third project asked whether subsidizing "national Champions" can be explained as the optimal policy response in an environment with profit heterogeneity and union wage determination. Other topics covered in the project are international regulatory competition for heterogeneous banks, and the effects of wage and trade policies when workers have different productivities.

Publications

• (2013): Sorting into Outsourcing: Are Profits Taxed at a Gorilla’s Arm’s Length? Journal of International Economics, Vol. 90. 2013, Issue 2, pp. 326–336.
  Bauer, Christian; Langenmayr, Dominika
  (See online at https://dx.doi.org/10.1016/j.jinteco.2012.12.002)
• 2013. Tax Competition in a Simple Model with Heterogeneous Firms: How Larger Markets Reduce Profit Taxes. International Economic Review, Vol. 54. 2013, Issue 2, pp. 665–692.
  Haufler, Andreas; Stähler, Frank
  (See online at https://dx.doi.org/10.1111/iere.12010)
• 2014. Cross-Border Loss Offset can Fuel Tax Competition. Journal of Economic Behavior & Organization, Vol. 106. 2014, pp. 42–61.
  Haufler, Andreas; Mardan, Mohammed
  (See online at https://dx.doi.org/10.1016/j.jebo.2014.06.001)
• 2014. Does Collective Wage Bargaining Restore Efficiency in a Search Model with Large Firms? The Economic Journal, Vol. 124. 2014, Issue 579, pp. 1066–1085.
  Bauer, Christian; Lingens, Jörg
  (See online at https://dx.doi.org/10.1111/ecoj.12073)
• 2014. Economic Integration and the Optimal Corporate Tax Structure with Heterogeneous Firms. Journal of Public Economics, Vol. 110. 2014, pp. 42–56.
  Bauer, Christian; Davies, Ronald B.; Haufler, Andreas
  (See online at https://dx.doi.org/10.1016/j.jpubeco.2013.12.001)
• 2014. Exports and the labor market. A dynamic model with on-the-job search. Munich Discussion Paper in Economics 2014-20 / Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2014-20.
  Suverato, D.
  (See online at https://doi.org/10.2139/ssrn.2462189)
• 2015. Should Tax Policy Favor High- or Low-Productivity Firms? European Economic Review, Vol. 73. 2015, pp. 18–34.
  Langenmayr, Dominika; Haufler, Andreas; Bauer, Christian
  (See online at https://doi.org/10.1016/j.euroecorev.2014.10.005)
• 2016. Regulatory Competition in Capital Standards with Selection Effects among Banks. CESifo Working Paper No 5839, München
  Haufler, A., Maier, U.