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Exports, Foreign Direct Investment and the Costs of Corporate Taxation

  • Christian Keuschnigg

    ()

Depending on the definition of the tax base, the statutory corporate tax rate implies rather different measures of effective average and marginal tax rates. 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 elasticities of the extensive and intensive investment responses.

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File URL: http://ux-tauri.unisg.ch/RePEc/usg/dp2006/DP17_Keu.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2006 with number 2006-17.

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Length: 31 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:usg:dp2006:2006-17
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