Seminar für Wirtschaftspolitik (Prof. Haufler)
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Completed Research Projects

Firms with Heterogeneous Profitability: An Argument for "Pick-the-Winner" Strategies in Tax and Industrial Policies? (HA 3195/8)

Christian Bauer, Andreas Haufler and Davide Suverato; financed by the German Research Foundation (DFG)

The goal of this research project is 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 aim at achieving a better understanding of the link between tax policies, firm behaviour, and tax revenues. Second, we ask if heterogenous 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 undertake three core projects. The first project asks 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 (Bauer and Langenmayr, 2013). In the second project, we analyze 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 (Bauer et al., 2014). The third project asks whether subsidizing “national champions” can be explained as the optimal policy response in an environment with profit heterogeneity and union wage determination (Langenmayr et al., 2015). Another topics covered in the project are the effects of wage and trade policies when workers have different productivities (Bauer and Lingens, 2014, Suverato, 2014).

Research Results:

  • Bauer, C., Davies, R., and Haufler, A. (2014). Economic integration and the optimal corporate tax structure with heterogeneous firms. Journal of Public Economics 110, 42-56.
  • Bauer, C., and Langenmayr, D. (2013). Sorting into outsourcing. Are profits taxed at a gorilla's arm's length? Journal of International Economics 90, 326-336.
  • Bauer, C.; Lingens, J. (2014): Does Collective Wage Bargaining Restore Efficiency in a Search Model with Large Firms? The Economic Journal 124, 1066-1085.
  • Haufler, A., Stähler, F. (2013). Tax competition in a simple model with heterogeneous firms: How larger markets reduce profit taxes. International Economic Review 54, 665-692.
  • Langenmayr, D., Haufler, A., and Bauer, C. (2015). Should tax policy favor high- or low-productivity firms? European Economic Review 73, 18-34.
  • Suverato, D. (2014). Exports and the labor market. A dynamic model with on-the-job search. Munich Discussion Paper in Economics 2014-20.