How do Corporate Taxes affect International Trade?


Mario Holzner, Branimir Jovanović and Goran Vukšić

wiiw Working Paper No. 212, November 2021
46 pages including 23 Tables and 5 Figures

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This paper investigates how corporate income taxes affect international trade, and identifies the underlying channel. Using data on 33 NACE sectors, for 34 EU and OECD economies, over the period 2005-2014, we find that corporate income taxes reduce exports and imports only when the stock of foreign direct investment (FDI) is high. The effect is present primarily in the service sector and in countries with low corporate taxes. We interpret these findings as evidence that multinational enterprises reduce their operations in countries that raise their corporate taxes. The effect has been found to be small on aggregate, implying that the expected increase in corporate taxes in the future, arising from the global minimum tax, is unlikely to hurt international trade.


Reference to wiiw databases: wiiw Annual Database

Keywords: taxation, profits, international trade, exports, imports, FDI

JEL classification: F14, F23, H25

Countries covered: EU, OECD

Research Areas: Macroeconomic Analysis and Policy, International Trade, Competitiveness and FDI, Sectoral studies