DP5769 Exports, Foreign Direct Investment and the Costs of Coporate Taxation
|Publication Date:||August 2006|
|Keyword(s):||corporate taxation, costs of public funds, exports, foreign direct investment|
|JEL(s):||D21, F23, H25, L11, L22|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5769|
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.