Tax policy and the location decision of firms

Bernd Genser () and Andreas Haufler

No 306, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: An optimal taxation approach is employed to discuss the interaction between factor and commodity taxes for a small open economy when profit-earning firms are mobile internationally. In this framework, a destination-based commodity tax is shown to be superior to an origin-based VAT from an efficiency perspective. Furthermore, in the absence of co-ordination measures the small country finds it optimal to charge a zero effective tax rate on corporate profits. This provides an argument for an increased role of the EU in the field of capital taxation if mobility costs within Europe are systematically lower than costs for outside investments.

Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kondp2:306

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