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The Role of Corporate Taxation in a Large Welfare State

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  • Christian Keuschnigg

Abstract

In comparing the impact of corporate taxation and social insurance on foreign direct investment (FDI) and unemployment, the paper derives four main results: (i) the optimal size of the welfare state depends on the degree of risk-aversion, the unemployment rate and the excess burden of labor taxes. Unemployment partly reflects the country's exposure to globalization; (ii) corporate taxation and social insurance can have equivalent effects on unemployment and outbound FDI; (iii) while an increase in the corporate tax raises corporate tax revenue, it is likely to worsen total fiscal stance; (iv) a corporate tax should be used to contribute to welfare state financing only in exceptional cases.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 145 (2009)
Issue (Month): IV (December)
Pages: 443-452

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Handle: RePEc:ses:arsjes:2009-iv-6

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Keywords: Corporate tax; foreign direct investment; unemployment; welfare state;

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  1. repec:ese:emodwp:em1-04 is not listed on IDEAS
  2. Keuschnigg, Christian & Ribi, Evelyn, 2009. "Outsourcing, unemployment and welfare policy," Journal of International Economics, Elsevier, vol. 78(1), pages 168-176, June.
  3. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  4. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  5. Christian Keuschnigg, 2007. "Exports, Foreign Direct Investment and the Costs of Corporate Taxation," Working Papers 0708, Oxford University Centre for Business Taxation.
  6. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007. "Welfare reform in European countries: a microsimulation analysis," Economic Journal, Royal Economic Society, vol. 117(516), pages 1-44, 01.
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Cited by:
  1. Feldmann, Horst, 2011. "The Unemployment Puzzle of Corporate Taxation," Department of Economics Working Papers 37933, University of Bath, Department of Economics.

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