Published Papers 2009
Paper 2009-IV-6
"The Role of Corporate Taxation in a Large Welfare State"
Christian Keuschnigg
Abstract:In comparing the impact of corporate taxation and social insurance on foreign direct investment (FDI) and unemployment, the paper derives four main results: (i) the optimal size of the welfare state depends on the degree of risk-aversion, the unemployment rate and the excess burden of labor taxes. Unemployment partly reflects the country's exposure to globalization; (ii) corporate taxation and social insurance can have equivalent effects on unemployment and outbound FDI; (iii) while an increase in the corporate tax raises corporate tax revenue, it is likely to worsen total fiscal stance; (iv) a corporate tax should be used to contribute to welfare state financing only in exceptional cases.
Pages: 443-452
JEL classification: F21, H21, H53, J64, J65
Keywords: Corporate tax, foreign direct investment, unemployment, welfare state
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