DYNAMIC EFFECTS OF CORPORATE TAXATION IN OPEN ECONOMY

Olivier Cardi, Kübra Höke and Romain Restout

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: By exploiting the downward trend of OECD countries profits’ taxation rooted into international competition to attract capital, we identify exogenous variations in corporate income taxes. Our SVAR-based evidence reveals that a permanent decline in profits’ taxation leads to significant technology improvements which are concentrated in traded industries and generates an expansionary effect on hours which is concentrated in the non-traded sector. While technology dramatically improves in English-speaking and Scandinavian countries, hours significantly increase in continental Europe. A twosector open economy model with endogenous technology decisions can rationalize the evidence conditional on a set of elements which characterize households’ preferences and firms’ ability to improve technology. In line with our estimates, traded technology must display a high elasticity w.r.t. both the domestic and international stock of knowledge in former countries while the weight attached to consumption habits along with wage stickiness shape the expansionary effect on nontradable hours in continental Europe.

Keywords: Corporate taxation; SVAR; Open economy; Endogenous technological change; R&D; Hours worked; Tradables and non-tradables; Labor reallocation; Wage stickiness. (search for similar items in EconPapers)
JEL-codes: E23 E62 F11 F41 H25 O33 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-opm and nep-pbe
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Related works:
Working Paper: Dynamic Effects of Corporate Taxation in Open Economy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2024-29

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