Optimal Tax Policy when Firms are Internationally Mobile

Bl _hA^h г/ .-,          ^s λ ^{s s} Γ^b+ ( S B^lh lK^l'∖ ‘A^h F^h-K^h ʌ jγ>

/в- ʃ" [(^f - K)] dAdB Bb- (J^{F - K} ‘ -< к)^d-^b

JBB^- Sh^h KdAdB          SB- (f^h - к^h) '.dB

Now consider the second term in the square brackets. It is:

cov

Rearrange:

^ιF [(f^h - K^h) ⅜') dB
SB- F^h - ^kh) A^dB

where the LHS is the second term is square brackets of equation (33). Now
rewrite equation (33):

∂w _ry h _h ^cov

—— = Ω r - r^h--

(Fh _- кh⁾ ‘A^h F^h-K^h

(F^h - K^h) ‘"h

with r = ^fkK the average return per capital unit, r^h
per capital unit of the most productive firm and

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