Economic Integration and Tax Policy with Endogenous Foreign Firm Ownership

Fuest, Clemens (2005) Economic Integration and Tax Policy with Endogenous Foreign Firm Ownership. Journal of Public Economics, 89 (9-10). pp. 1823-1840.


This paper analyses the impact of economic integration on tax policy in a model where corporate taxation is motivated by the desire to tax profits accruing to foreigners and the number of foreign owned firms is endogenous. Increasing economic integration is modeled as a decline in trade costs or tariffs. It turns out that declining trade costs lead to increasing profit taxes if the government may use import tariffs. If tariffs are not available, declining trade costs induce profit taxes to decline as well. A mandatory reduction in tariffs also triggers profit tax reductions. We conclude that the existence of foreign firm ownership may fail to prevent profit taxes from declining as economic integration proceeds.

Item Type: Article
Keywords: Economic integration; Corporate taxes; Foreign firm ownership
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 02 Oct 2013 15:20
Last Modified: 23 Oct 2015 14:08

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