Corporate Taxation and Multinational Activity

Table 1: The impact of corporate taxation on foreign affiliate production®

Notes:      The assumptions about factor endowments in country i are as following: small: Li/(L¾ H- L₇-) = Si∕(Si + Sj) = 0.15. large: Li∕(Li ⅛ Lj) = Si∕(Si ⅛ <S₇-) = 0.85.

identical: Li/(Li + L₇) = Si/(Si + Sj) = 0.5. skilled labor abundant: Li/(Li + L₇) = 0.15, Si∕(Si + Sj) = 0.85.

∆t¾ (A,tj) indicates an increase of the corporate tax rate in country i (country j).

Λ,tJ' indicates an increase of the withholding tax in country j.

Δ<5⅛ (Δ<5₇) indicates an increase in the depreciation allowances in country i (country j).

^a Affiliate production is measured in percent of the total production of the X-good.

^b To evaluate the impact of a change in tax parameter, the tax rates are set at L = tj = 0.05, which leads to affiliate production of 7.86% initially.

^c Positive, if country i is in excess credit position, i.e. if L < (tj -∖-1↑∕ (1 — tj)) holds, otherwise negative.

^d Negative, if country i is not in excess credit position, i.e. if tj < (t¾ — tj (1 — tj)) holds, otherwise positive.

^e Positive, if both countries are in excess credit position, i.e. within the range (tj — fP(l — ti)) < ti < (tj T tP(l — tj)), otherwise negative.

ʃ Negative, if both countries are in excess credit position, i.e. within the range (ti — tj (1 — t₇)) < t₇- < (ti H- tj (1 — tj), otherwise positive.

⁹ Positive, for a reasonably large tax increase, otherwise negative.

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