Swiss Journal of Economics and Statistics

, Volume 145, Issue 4, pp 443–452 | Cite as

The Role of Corporate Taxation in a Large Welfare State

Open Access


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.


F21 H21 H53 J64 J65 


corporate tax foreign direct investment unemployment welfare state 


  1. Hosios, Arthur J. (1990), “On the Efficiency of Matching and Related Models of Search and Unemployment”, Review of Economic Studies, 57, pp. 279–298.CrossRefGoogle Scholar
  2. Immervoll, Herwig, Henrik J. Kleven, Claus T. Kreiner, and Emmanuel Saez (2007), “Welfare Reform in European Countries: A Microsimulation Analysis”, Economic Journal, 117, pp. 1–44.CrossRefGoogle Scholar
  3. Keuschnigg, Christian (2008), “Exports, Foreign Direct Investment and the Costs of Corporate Taxation”, International Tax and Public Finance, 15, pp. 460–477.CrossRefGoogle Scholar
  4. Keuschnigg, Christian (2009), “Corporate Taxation and the Welfare State”, CESifo WP 2557 and University of St. Gallen, Scholar
  5. Keuschnigg, Christian and Evelyn Ribi (2009), “Outsourcing, Unemployment and Welfare Policy”, Journal of International Economics, 78, pp. 168–176.CrossRefGoogle Scholar
  6. Nickell, Stephen (1997), “Unemployment and Labor Market Rigidities: Europe versus North America”, Journal of Economic Perspectives, 11, pp. 55–74.CrossRefGoogle Scholar
  7. Saez, Emmanuel (2002), “Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses”, Quarterly Journal of Economics, 117, pp. 1039–1073.CrossRefGoogle Scholar

Copyright information

© Swiss Society of Economics and Statistics 2009

Authors and Affiliations

  1. 1.University of St. Gallen (IFF-HSG), CEPR and CESifoSt. GallenSwitzerland

Personalised recommendations