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Optimal Corporation Tax: An I.O. Approach

IIIS Discussion Paper No. 97

22 Pages Posted: 7 Aug 2006

See all articles by Luca Colombo

Luca Colombo

Trinity College (Dublin) - Institute for International Integration Studies (IIIS)

Paulo Labrecciosa

Trinity College (Dublin) - Department of Economics

Patrick Paul Walsh

UCD; Institute for the Study of Labor (IZA)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

Abstract

Our IO approach links optimal effective corporation tax rates to the nature of sunk costs within industries. Theory predicts that optimal effective corporation tax rates will be negatively related to industry specific sunk cost, and hence industry concentration. Governments should tax industries with monopolistic power softly. Evidence suggests that this Schumpeterian (1942) principle of corporate taxation was used widely across industries in France, Italy and the UK in the 1990s.

Keywords: Effective Corporation Tax Rate, Sunk Costs, Industry Concentration

JEL Classification: H25, L52

Suggested Citation

Colombo, Luca and Labrecciosa, Paulo and Walsh, Patrick Paul, Optimal Corporation Tax: An I.O. Approach (October 2005). IIIS Discussion Paper No. 97, Available at SSRN: https://ssrn.com/abstract=922248 or http://dx.doi.org/10.2139/ssrn.922248

Luca Colombo (Contact Author)

Trinity College (Dublin) - Institute for International Integration Studies (IIIS) ( email )

The Sutherland Centre, Level 6, Arts Building
Trinity College
Dublin 2
Ireland

Paulo Labrecciosa

Trinity College (Dublin) - Department of Economics ( email )

Dublin 2
Ireland

Patrick Paul Walsh

UCD ( email )

University College Dublin
Belfield, Dublin Dublin 4
Ireland

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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