In this paper we examine the optimal taxation of corporate profits in a multi-period limit pricing model where a dominant firm faces expansion by a competitive fringe. The optimal policy requires tax rates to vary both intertemporally and across firm sizes, and balances the benefit of fringe...

The paper shows how a tax holiday may signal to a skeptical capital market that the future level of taxation will be moderate. After the signal has informed investors that the host country government is a low spender, the tax profile flattens out, corresponding to a tax reform stage. Contrary to...