Essays on Corporate Taxation in the Open Economy

Abstract

This dissertation contains 3 essays that analyze different aspects of corporate taxation. The first essay studies optimal corporate taxes using an enhanced version of the Melitz trade model that contains heterogeneous industries and a corporate tax framework. I show that the choice of distribution for firms’ productivity is critical as different distributions generate optimal tax rates that differ not only quantitatively but also on their qualitative properties. I show welfare losses of using the Pareto distribution, the literature standard, instead of the lognormal distribution, supported by the data. The second essay explores the link between corporate taxes and income inequality in the context of an integrated world via trade in goods and assets. The model used presents an economy with two different households: a worker who doesn’t own assets and, a capitalist who owns the assets in this economy. It is shown that changes in corporate taxes lead to asymmetric welfare effects: workers suffer the negative effects for longer periods of time relative to the capitalists. The final essay uses balance sheet data from European countries to calculate their effective corporate tax rate in a way that permit its comparison across countries. Analyzing these effective rates by firm size I show that at the national level there isn’t enough evidence to support the claim that larger firms pay less taxes than other firms. However, when the study is carried at the industry level I find that larger firms have a smaller tax liability in several industries, many of which are consistent across the countries included in the sample.