The Corporate Income Tax and the Competitiveness of U.S. Industries

30 Pages Posted: 21 Jan 2009  

Michael S. Knoll

University of Pennsylvania Law School; University of Pennsylvania - Real Estate Department

Date Written: January 15, 2009


Hit hard by the financial crisis and recession, U.S. auto producers are seeking a massive bailout from the U.S. Congress. Many reasons are given for the U.S. auto industry's lack of competitiveness including the U.S. corporate income tax. Although it is regularly asserted that there is a direct connection between the corporate income tax and competitiveness, what that connection is has not been carefully spelled out. In this essay, I describe how the corporate income tax directly harms the competitiveness of U.S. industries. I show that the mechanism differs depending upon whether the U.S. industry is defined as the global production of U.S.-based corporations or as all productive activities undertaken in the United States regardless of where the corporations undertaking those activities are based. I also examine the impact on competitiveness of various possible replacements for the corporate income tax, including a value added tax (VAT), formulary apportionment, a cost of capital allowance (COCA), and preset "in lieu of tax" payments.

Keywords: foreign direct investment, international taxation, tax competition, capital export neutrality (CEN), capital import neutrality (CIN), capital ownership neutrality (CON), automobiles, bailout, credit crunch, value added tax, formulary apportionment, and cost of capital allowance (COCA)

JEL Classification: K34, L6

Suggested Citation

Knoll, Michael S., The Corporate Income Tax and the Competitiveness of U.S. Industries (January 15, 2009). U of Penn, Inst for Law & Econ Research Paper No. 09-01. Available at SSRN: or

Michael S. Knoll (Contact Author)

University of Pennsylvania - Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-6190 (Phone)
215-573-2025 (Fax)

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