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The Role of Corporate Taxation in a Large Welfare State


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.


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Correspondence to Christian Keuschnigg.

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I am grateful to seminar participants at the annual meeting of the Swiss Economic Association 2009 for helpful comments.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Keuschnigg, C. The Role of Corporate Taxation in a Large Welfare State. Swiss J Economics Statistics 145, 443–452 (2009).

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  • F21
  • H21
  • H53
  • J64
  • J65


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