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Corporation Tax, the Exchange Rate, and Cross-Border Firm Mobility

Corporation Tax, the Exchange Rate, and Cross-Border Firm Mobility In this paper, we extend a new open economy macroeconomics (NOEM) model to examine the effects of a corporate tax reduction on home and foreign countries. The feature of this open economy model is that cross-border relocation of firms is allowed. We show that (i) a reduction in the home corporate tax rate induces an exchange rate appreciation (depreciation) when the degree of cross-border firm mobility is large (small) and (ii) when the degree of cross-border firm mobility is large (small), a reduction in corporate tax is beneficial (detrimental) to the domestic country but detrimental (beneficial) to the foreign country. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of International Commerce, Economics and Policy World Scientific Publishing Company

Corporation Tax, the Exchange Rate, and Cross-Border Firm Mobility

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Publisher
World Scientific Publishing Company
ISSN
1793-9933
eISSN
1793-9941
DOI
10.1142/S1793993321500150
Publisher site
See Article on Publisher Site

Abstract

In this paper, we extend a new open economy macroeconomics (NOEM) model to examine the effects of a corporate tax reduction on home and foreign countries. The feature of this open economy model is that cross-border relocation of firms is allowed. We show that (i) a reduction in the home corporate tax rate induces an exchange rate appreciation (depreciation) when the degree of cross-border firm mobility is large (small) and (ii) when the degree of cross-border firm mobility is large (small), a reduction in corporate tax is beneficial (detrimental) to the domestic country but detrimental (beneficial) to the foreign country.

Journal

Journal of International Commerce, Economics and PolicyWorld Scientific Publishing Company

Published: Oct 30, 2021

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