nep-pub New Economics Papers
on Public Finance
Issue of 2014‒10‒22
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Foreign Direct Investment and Fiscal Policy - A Literature Survey By António Jacinto Simões; José Ventura; Luís A. G. Coelho
  2. Tax-adjusted Q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives By Estelle P. Dauchy; Sophia Chen
  3. Equilibria Under Monetary and Fiscal Policy Interactions with Distortionary Taxation By Gliksberg, Baruch
  4. Does Corporate Taxation Deter Multinationals? Evidence from a Historic Event in Ireland By Holger Görg; Eric Strobl

  1. By: António Jacinto Simões (Management Department, Évora University); José Ventura (CEFAGE-UE and Management Department, Évora University); Luís A. G. Coelho (CEFAGE-UE and Management Department, Évora University)
    Abstract: This paper conducts a literature survey on Foreign Direct Investment (FDI) and its relation to fiscal policy. Geographical and cultural proximity between originating and host countries, market size of the host countries, as well as other exogenous variables have been pointed out by a significant part of the literature as crucial factors in FDI decisions. Fiscal policy, as an endogenous factor, is an increasingly important tool on the countries competitiveness for attracting FDI, mainly in the Euro-zone. The papers analyzed identify some areas of fiscal policy: most papers focus analysis of fiscal policy only on the tax rate – that is, on the relationship between the income tax rate in force in the country and FDI; other papers analyze the relationship between fiscal harmonization and FDI; some papers study the relationship between the complexity of the fiscal system and FDI; while others attempt to relate other specific areas of fiscal policy – e.g. fiscal regime of thin capitalization – with FDI decisions; various other studies show the relationship between territories with non-existent (or extremely low) fiscal regimes and FDI. It is expected that this characteristics of fiscal policy, will be relevant in the decision-making process, where countries are competing with each other as potential locations for FDI.
    Keywords: Foreign Direct Investment; Fiscal Policy; Corporate Income Tax Rate; Tax Harmonization; Tax Complexity; Tax Havens.
    JEL: H30 H21 H25 F21
    Date: 2014
  2. By: Estelle P. Dauchy (New Economic School); Sophia Chen (Research Department, International Monetary Fund)
    Abstract: We propose a tax-adjusted q model with physical and intangible assets and estimate the effect of bonus depreciation in the United States in the early 2000s. We find that investment responds moderately to tax incentives; however allowing for heterogeneity reveals that intangible-intensive firms are more responsive than physical-intensive firms and their differences increase with firm size. Accounting for intangible assets increases the estimated total investment response from 3.7 to 14.3 percent among the largest 500 firms. Our results imply that understanding the behavior of large and intangible-intensive firms has important implications for the design and evaluation of investment policy.
    Keywords: investment tax incentives, intangible assets, q model of investment, bonus depreciation
    JEL: H25 G31 E01
    Date: 2014–09
  3. By: Gliksberg, Baruch (Department of Economics, University of Haifa)
    Abstract: This paper studies how the presence of an income tax changes the properties of general equilibrium models. It fi�nds that relative to the previous literature [following Leeper (1991)] a new area of determinacy exists where a passive �fiscal rule combined with a passive monetary rule can still deliver determinacy where the same area of the parameter space would lead to multiple solutions if taxes were lump sum. It characterizes analytically the extent to which tax cuts are self �financing and how the distortionary tax Laffer curve looks near the steady state in order to obtain the size of the passive �fiscal-passive monetary regime. In this regime, �scal limits bring about a Tobin effect and nominal prices are determined according to the quantity theory of money.
    Keywords: Distorting Taxes; Dynamic Laffer Curve; Equilibrium Determinacy;
    JEL: C60 E60 H60
  4. By: Holger Görg; Eric Strobl
    Abstract: We use a unique exogenous corporate tax policy change in the Republic of Ireland to investigate how corporate taxation affects foreign direct investment at the extensive and intensive margin. To this end we construct exhaustive sectoral and plant level panel data and use difference-in-differences strategies. Our results do not provide strong evidence that the increase in corporate tax rates for exporters did affect the entry or exit of plants from the US or UK in Ireland. Entry rates of German firms seem to be negatively affected, however. At the intensive margin there is evidence that foreign plants in Ireland reduce the size of their operations in response to the tax change
    Keywords: multinational companies, foreign direct investment, corporate tax, Ireland, difference-in-differences
    JEL: F23 H25
    Date: 2014–09

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