Abstract
This short paper extends the analysis of Morgan and Tumlinson (2018) to the setting of a small open economy. We show that in this economy featuring endogenous free entry of firms: (1) Both the number and production of firms is socially optimal. Furthermore production is efficient --- it minimizes average costs. (2) All firms engage in positive CSR: They divert a strictly positive portion of their profits to the public good. (3) When non-entrepreneurs contribute positive amounts to the public good, firm profit diversion exactly coincides with the socially optimal corporate tax.
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