32 Pages Posted: 20 Jul 2006
Date Written: October 2007
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: 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