Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249145 
Year of Publication: 
2021
Series/Report no.: 
Discussion Papers No. 955
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
In this paper, we study how lower corporate tax rates impact investment by including two novel channels into a DSGE model used for fiscal policy analysis in Norway. We capture both how foreign firms relocate and invest in the country when corporate taxes are reduced and how the inflow of FDI increase exports which spills over to domestic firms who then increase their investment further. We find that a one percentage point reduction in the corporate tax rate increases investment by 0.6%, most of which can be attributed to the FDI-export link. The corporate tax cut becomes self-financed when the FDI-export link is included, but only if other countries do not follow suit and also lower their corporate tax rates. When using the model to analyze the tax reform in Norway from 2014 to 2019, we find overall positive effects on investment and employment.
Subjects: 
Corporate profit tax
Foreign direct investment
Exports
Imports
User cost of capital
Depreciation
Tax reform
JEL: 
E62
H21
H25
H32
Document Type: 
Working Paper

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