Departmental Bulletin Paper Foreign Investment, Tax Policies and Economic Development
Foreign Investment, Tax Policies and Economic Development

高橋, 美多

Description
This study examines optimal tax and tariff policies for a small, open economy that seeks to attract capital from foreign investors who receive a credit for taxes paid to the host country. We prove that the optimal tax and tariff rates are not a unique pair, but are instead plural pairs. Therefore, the host country can maintain the after-tax rate of return of the foreign capital when it increases its tax and tariff rates at a ratio. In other words, the host country attracts foreign investment and maintains the real income of the country while raising tariff rates. This result suggests that the host country simultaneously realizes maximum income and protection of infant industries. We also prove that a decrease in the risk premium increases the real income of the country that implements optimal tax and tariff policies.
This study examines optimal tax and tariff policies for a small, open economy that seeks to attract capital from foreign investors who receive a credit for taxes paid to the host country. We prove that the optimal tax and tariff rates are not a unique pair, but are instead plural pairs. Therefore, the host country can maintain the after-tax rate of return of the foreign capital when it increases its tax and tariff rates at a ratio. In other words, the host country attracts foreign investment and maintains the real income of the country while raising tariff rates. This result suggests that the host country simultaneously realizes maximum income and protection of infant industries. We also prove that a decrease in the risk premium increases the real income of the country that implements optimal tax and tariff policies.
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