Exports, Foreign Direct Investment and the Costs of Coporate Taxation

30 Pages Posted: 19 Sep 2006

See all articles by Christian Keuschnigg

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: August 2006

Abstract

Depending on the definition of the tax base, the statutory corporate tax rate implies rather different measures of effective average and marginal tax rates. 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 elasticities of the extensive and intensive investment responses.

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

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

Suggested Citation

Keuschnigg, Christian, Exports, Foreign Direct Investment and the Costs of Coporate Taxation (August 2006). CEPR Discussion Paper No. 5769, Available at SSRN: https://ssrn.com/abstract=931505

Christian Keuschnigg (Contact Author)

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

Varnbuelstrasse 19
St. Gallen, 9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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