Exports, Foreign Direct Investment and the Costs of Corporate Taxation

32 Pages Posted: 20 Jul 2006  

Christian Keuschnigg

University of St. Gallen - Department of Economics (FGN-HSG); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: October 2007

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.

Keywords: Exports, foreign direct investment, corporate taxation, extensive and intensive investment, costs of public funds

JEL Classification: D21, F23, H25, L11, L22

Suggested Citation

Keuschnigg, Christian, Exports, Foreign Direct Investment and the Costs of Corporate Taxation (October 2007). U. of St. Gallen Law & Economics Working Paper No. 2007-02; CESifo Working Paper Series No. 2114. Available at SSRN: https://ssrn.com/abstract=917774 or http://dx.doi.org/10.2139/ssrn.917774

Christian Keuschnigg (Contact Author)

University of St. Gallen - Department of Economics (FGN-HSG) ( email )

Varnbuelstrasse 19
St. Gallen, CH-9000
Switzerland
+41 71 224 3085 (Phone)
+41 71 224 2874 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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