Corporate Tax Reductions, Cross-Border Ownership and Welfare

Abstract

In this paper, a three‐country model incorporating the cross‐border ownership of stock and international firm relocation is constructed. Using this model, the effects of a reduction in the corporate tax on welfare in all three countries is examined. The findings indicate that if the country undertaking the reduction is moderately rich, and one of the two remaining countries is rich while the other country is poor, the tax reduction not only brings about a positive effect on its own welfare, but also increases the welfare of the rich foreign country and lowers that of the poor foreign country.