Tax Competition for Heterogeneous Firms with Endogenous Entry

This paper models tax competition for mobile firms that are differentiated by their productivities Because taxes affect the distribution of firms, they affect wages prices, and the number of firms From the social planner's perspective, optimal taxes efficiently distribute income between private and public consumption and are harmonized, providing the optimal number of firms This is not a Nash equilibrium As is common in such models equilibrium taxes are inefficiently low Furthermore there is no pure strategy equilibrium with equal taxes resulting in too many firms This illustrates a new distortion from tax competition and a new benefit from harmonization