Domestic Taxes and International Trade: Some Evidence

30 Pages Posted: 23 Mar 2006

See all articles by Michael Keen

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Murtaza Syed

Institute for Fiscal Studies (IFS)

Date Written: February 2006

Abstract

The effects on trade performance of corporate taxes and the value-added tax (VAT) continue to excite controversy but have received little empirical attention. This paper uses panel data for OECD countries from 1967 to 2003 to examine the effects of these taxes on export performance, paying particular attention to the potentially complex dynamic effects to which theory points. It finds that increased reliance on VAT revenue tends to be associated with a sharp reduction in net exports, which quickly fades. This may reflect unrelated movements in consumption, and our preferred specifications point to no trade effects of the VAT in either the short or the long run. Our results also point, however, to powerful and complex effects from the corporate tax, the pattern of which is as theory would predict from a source-based tax of this kind. Increases in corporate taxation - whether measured by revenues or the statutory rate - are associated with sharp short-run increases in net exports (consistent with induced capital flows abroad); these are then subsequently and quickly reversed (consistent with increased income from investments abroad), leaving an increase in net exports that converges to zero.

Keywords: Corporate taxation, value-added tax, trade

JEL Classification: H2, F1

Suggested Citation

Keen, Michael and Syed, Murtaza, Domestic Taxes and International Trade: Some Evidence (February 2006). IMF Working Paper, Vol. , pp. 1-30, 2006. Available at SSRN: https://ssrn.com/abstract=892938

Michael Keen (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Murtaza Syed

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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