Corporate Taxation and Multinational Activity



same way with the homogeneous good Z .

3.1 Households

Preferences are assumed to be a Cobb-Douglas nest of the homogeneous Z-
good and the differentiated
X -good. The price of Z serves as the num´eraire. Ui
describes the utility function of a representative household in country i, where
μ denotes the fixed expenditure share for differentiated products and σ > 1 is
the elasticity of substitution between differentiated product varieties:

Ui


Xic


Xμc (Ziii + Zjji) μ ,
(l^                    Пп
σ1            —1

1j  + hi Xhj) σ

σ-1

σ-1       X χ V σ --- -1

+ hj XX^ σ + vi      J + vj (Xj )σ-


(1)


Transportation of the differentiated X -good across the border is subject to
iceberg transport costs (
τ) for the shipment of each unit. Z-goods, in contrast,
are costlessly tradeable.

For each firm type and location, the utility maximization of consumers yields
demand for a single variety of manufactures

Xji  =  Ppki} σpσ- 1 μE    i { 1, 2}    k {n,h}

Xkii  =  (j´ -σ Piσ-1 μEi    i = j { 1, 2}      k {h,v}

Xj  =  (PVji}-σ pσ- 1 μEi    i = j { 1, 2}

Xnji  =  (Pnji)' Pk- 1 μEi    i = j { 1, 2}∙                        (2)

Ei represents the total expenditures of consumers in country i. The price index
Pi of differentiated goods consumed in country i can be written as

Pi


ni (Pki) 1-σ + nj (Pnji¢ 1 -σ + hi (Pki´ 1 -σ

1

(j ∖ 1 —σ                i .              s^izτ 1—

Pai)     + vi (Pvji ¢     + vj (Pυvii ¢

(3)


Expenditures for X and Z are allocated as follows:

Xic


μEi

Pi ,


(4)




More intriguing information

1. The name is absent
2. Estimating the Technology of Cognitive and Noncognitive Skill Formation
3. Lumpy Investment, Sectoral Propagation, and Business Cycles
4. The name is absent
5. The name is absent
6. Fiscal Policy Rules in Practice
7. Death as a Fateful Moment? The Reflexive Individual and Scottish Funeral Practices
8. ALTERNATIVE TRADE POLICIES
9. The name is absent
10. THE INTERNATIONAL OUTLOOK FOR U.S. TOBACCO