Exports, Foreign Direct Investment and the Costs of Corporate Taxation
University of St. Gallen - Department of Economics (FGN-HSG); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)
U. of St. Gallen Law & Economics Working Paper No. 2007-02
CESifo Working Paper Series No. 2114
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.
Number of Pages in PDF File: 32
Keywords: Exports, foreign direct investment, corporate taxation, extensive and intensive investment, costs of public funds
JEL Classification: D21, F23, H25, L11, L22
Date posted: July 20, 2006
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