International relocation, the real exchange rate and effective demand

Wataru Johdo and Ken-ichi Hashimoto

Japan and the World Economy, 2009, vol. 21, issue 1, 39-54

Abstract: By introducing an international relocation mechanism into a two-country model, we analyze the effects of an increase in the corporation tax in the richer country on employment and effective demand in both countries. This taxation policy proves to produce not only enterprise relocation, but also depreciation in the real exchange rate. The latter is also shown to dominate the former, such that rich-country employment and effective demand are stimulated. However, the two countries respond in opposing ways regarding enterprise relocation and real exchange rate adjustment. Consequently, employment and effective demand in the poor country will fall.

Keywords: Enterprise; relocation; Real; exchange; rate; Effective; demand; Corporation; tax (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0922-1425(07)00041-2
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:21:y:2009:i:1:p:39-54

Access Statistics for this article

Japan and the World Economy is currently edited by Robert Dekle and Yasushi Hamao

More articles in Japan and the World Economy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().