Optimal Corporation Tax: An I.O. Approach
Paper No' EI 42:
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Keywords: Effective Corporation Tax Rate; Industry Sunk Costs,
JEL Classification: H25; L52.
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This Paper is published under the following series:
Economics of Industry
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Theory predicts that optimal effective corporation tax rates will be
negatively related to industry specific sunk costs, 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.