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Exports, Foreign Direct Investment and the Costs of Corporate Taxation

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  • Christian Keuschnigg

Abstract

This paper develops a model of a monopolistically competitive industry with extensive and intensive business investment and shows how these margins respond to changes in average and marginal corporate tax rates. Intensive investment refers to the size of a firm’s capital stock. Extensive investment refers to the firm’s production location and reflects the trade-off between exports and foreign direct investment as alternative modes of foreign market access. The paper derives comparative static effects of the corporate tax and shows how the cost of public funds depends on the measures of effective marginal and average tax rates and on the behavioral elasticities of extensive and intensive investment.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-10/cesifo1_wp2114.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2114.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2114

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Keywords: exports; foreign direct investment; corporate taxation; extensive and intensive investment; effective tax rates; costs of public funds;

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References

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  1. Assaf Razin & Efraim Sadka, 2007. "Productivity and Taxes as Drivers of FDI," NBER Working Papers 13094, National Bureau of Economic Research, Inc.
  2. James R. Hines Jr., 1993. "Altered States: Taxes and the Location of Foreign Direct Investment in America," NBER Working Papers 4397, National Bureau of Economic Research, Inc.
  3. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate tax systems and cross country profit shifting," Munich Reprints in Economics, University of Munich, Department of Economics 20419, University of Munich, Department of Economics.
  4. Thiess Buettner & Georg Wamser, 2009. "The impact of nonprofit taxes on foreign direct investment: evidence from German multinationals," International Tax and Public Finance, Springer, Springer, vol. 16(3), pages 298-320, June.
  5. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  6. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, Econometric Society, vol. 71(6), pages 1695-1725, November.
  7. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  8. Christian Keuschnigg, 2007. "Exports, Foreign Direct Investment and the Costs of Corporate Taxation," CESifo Working Paper Series 2114, CESifo Group Munich.
  9. Buettner, Thiess & Ruf, Martin, 2005. "Tax incentives and the location of FDI: evidence from a panel of German multinationals," Discussion Paper Series 1: Economic Studies 2005,17, Deutsche Bundesbank, Research Centre.
  10. Devereux, Michael P & Hubbard, R Glenn, 2003. "Taxing Multinationals," International Tax and Public Finance, Springer, Springer, vol. 10(4), pages 469-87, August.
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  18. European Commission, 2001. "Company Taxation in the Internal Market," Taxation Studies, Directorate General Taxation and Customs Union, European Commission 0005, Directorate General Taxation and Customs Union, European Commission.
  19. Christian Keuschnigg & Martin Dietz, 2007. "A growth oriented dual income tax," International Tax and Public Finance, Springer, Springer, vol. 14(2), pages 191-221, April.
  20. Roger H. Gordon & James R. Hines Jr., 2002. "International Taxation," NBER Working Papers 8854, National Bureau of Economic Research, Inc.
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  34. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, Elsevier, vol. 68(3), pages 335-367, June.
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Citations

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Cited by:
  1. Christian Keuschnigg, 2009. "The Role of Corporate Taxation in a Large Welfare State," University of St. Gallen Department of Economics working paper series 2009, Department of Economics, University of St. Gallen 2009-23, Department of Economics, University of St. Gallen.
  2. Christian Keuschnigg, 2007. "Exports, Foreign Direct Investment and the Costs of Corporate Taxation," CESifo Working Paper Series 2114, CESifo Group Munich.
  3. Keuschnigg, Christian & Ribi, Evelyn, 2009. "Outsourcing, unemployment and welfare policy," Journal of International Economics, Elsevier, Elsevier, vol. 78(1), pages 168-176, June.
  4. Christian Keuschnigg, 2008. "Corporate Taxation and the Welfare State," University of St. Gallen Department of Economics working paper series 2008, Department of Economics, University of St. Gallen 2008-18, Department of Economics, University of St. Gallen.
  5. Egger, Peter & Eggert, Wolfgang & Keuschnigg, Christian & Winner, Hannes, 2010. "Corporate taxation, debt financing and foreign-plant ownership," European Economic Review, Elsevier, Elsevier, vol. 54(1), pages 96-107, January.
  6. Keuschnigg, Christian & Keuschnigg, Mirela, 2012. "Transition Strategies In Enacting Fundamental Tax Reform," National Tax Journal, National Tax Association, vol. 65(2), pages 357-85, June.

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