Corporate Taxation in Open Economies

Radek Šauer

No 12/RT/25, Research Technical Papers from Central Bank of Ireland

Abstract: This paper analyzes the macroeconomic impact of corporate taxation. The analysis is conducted in a quantitative two-country model. First, the paper describes the long-run effects of corporate taxation. A reduction in the corporate-income tax rate increases GDP, wages, consumption, investment, and business density. The trade balance is at the same time negatively affected. Firms headquartered in a country which lowers its corporate tax become internationally less active and instead focus more on their domestic market. Next, the paper examines transitional dynamics that are induced by a corporate-tax reform. The short-run response of the economy can substantially differ from the long-run response. Finally, the paper investigates the effects of international profit shifting in high-tax and low-tax jurisdictions.

Keywords: corporate taxation; macroeconomy; heterogeneous firms; multinationals; international spillovers; profit shifting. (search for similar items in EconPapers)
JEL-codes: E62 F42 H25 (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Related works:
Working Paper: Corporate Taxation in Open Economies (2022)
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