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Corporate Tax Policy And Industry Location With Fully Endogenous Productivity Growth

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  • Colin Davis
  • Ken‐ichi Hashimoto

Abstract

This paper considers how national corporate tax policy affects productivity growth through adjustments in geographic patterns of industry in a two‐country model of trade. With trade costs and imperfect knowledge spillovers between countries, production concentrates partially and innovation concentrates fully in the country with the lowest tax rate. A rise in the international corporate tax differential accelerates productivity growth through an increase in the production share of the low‐tax country that improves knowledge spillovers from industry to innovation. The paper also investigates the relationship between the corporate tax differential and the level of market entry, and analytically characterizes the effects of changes in tax policy on national welfare. (JEL F43, O30, O40, R12)

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  • Colin Davis & Ken‐ichi Hashimoto, 2018. "Corporate Tax Policy And Industry Location With Fully Endogenous Productivity Growth," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1136-1148, April.
    • Handle: RePEc:bla:ecinqu:v:56:y:2018:i:2:p:1136-1148
    DOI: 10.1111/ecin.12521
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    1. Daniel Balsalobre-Lorente & Ayoub Zeraibi & Khurram Shehzad & José María Cantos-Cantos, 2021. "Taxes, R&D Expenditures, and Open Innovation: Analyzing OECD Countries," JOItmC, MDPI, vol. 7(1), pages 1-12, January.
    2. Maebayashi, Noritaka & Morimoto, Keiichi, 2022. "Global Corporate Income Tax Competition, Knowledge Spillover, and Growth," MPRA Paper 112781, University Library of Munich, Germany.
    3. Maebayashi, Noritaka & Morimoto, Keiichi, 2022. "Global Corporate Income Tax Competition, Knowledge Spillover, and Growth," MPRA Paper 112790, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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