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Profit Taxation, Monopolistic Competition and International Relocation of Firms
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- Authors
- Issue Date
- 2010-07
- Citation
- Seoul Journal of Economics, Vol.23 No.3, pp. 365-389
- Keywords
- Profit tax ; Location ; Monopolistic competition ; Two country model
- Abstract
- This paper presents a two-country monopolistic competition trade
model to analyze how the profit taxation determines the location
of firms and national welfare. Profit tax cuts may increase or decrease
the number of firms in a country, depending on the elasticities
of substitution between domestic and foreign goods and
between goods produced in the same country. Accordingly, profit
tax cuts may increase or decrease domestic consumption and welfare,
depending on these elasticities. The paper provides parameter
conditions under which a decrease in the domestic profit tax attracts
foreign firms and increases domestic welfare.
- ISSN
- 1225-0279
- Language
- English
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