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  • Open Access

The Role of Corporate Taxation in a Large Welfare State

Swiss Journal of Economics and Statistics2009145:BF03399290

https://doi.org/10.1007/BF03399290

  • Published:

Summary

In comparing the impact of corporate taxation and social insurance on foreign direct investment (FDI) and unemployment, the paper derives four main results: (i) the optimal size of the welfare state depends on the degree of risk-aversion, the unemployment rate and the excess burden of labor taxes. Unemployment partly reflects the country’s exposure to globalization; (ii) corporate taxation and social insurance can have equivalent effects on unemployment and outbound FDI; (iii) while an increase in the corporate tax raises corporate tax revenue, it is likely to worsen total fiscal stance; (iv) a corporate tax should be used to contribute to welfare state financing only in exceptional cases.

JEL-Classification

  • F21
  • H21
  • H53
  • J64
  • J65

Keywords

  • corporate tax
  • foreign direct investment
  • unemployment
  • welfare state

Notes

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