drives low-productivity firms from the small country's home market, replacing them with high-productivity exporters from … abroad. This endogenous policy response creates a selection effect that increases the average productivity of home firms when …

Heterogeneous firm productivity seems to provide an argument for governments to pursue ‘pick-the-winner' strategies by …, favoring high-productivity firms is indeed the optimal policy. When tax competition is aggressive and profit taxes are low …, however, the optimal tax policy is reversed and low-productivity firms are tax-favored …