Corporation Tax, the Exchange Rate, and Cross-Border Firm Mobility

Wataru Johdo ()
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Wataru Johdo: Department of Economics, Tokyo Keizai University, 1-7-34, Minami-cho, Kokubunji-shi, Tokyo 185-8502, Japan

Journal of International Commerce, Economics and Policy (JICEP), 2021, vol. 12, issue 03, 1-19

Abstract: In this paper, we extend a new open economy macroeconomics (NOEM) model to examine the effects of a corporate tax reduction on home and foreign countries. The feature of this open economy model is that cross-border relocation of firms is allowed. We show that (i) a reduction in the home corporate tax rate induces an exchange rate appreciation (depreciation) when the degree of cross-border firm mobility is large (small) and (ii) when the degree of cross-border firm mobility is large (small), a reduction in corporate tax is beneficial (detrimental) to the domestic country but detrimental (beneficial) to the foreign country.

Keywords: Corporate tax reduction; cross-border firm mobility; exchange rate; welfare (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S1793993321500150

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