Discussion Papers no. 955

The effect of location decisions and exports

Corporate taxes, investment and the self-financing rate

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.

About the publication


Corporate taxes, investment and the self-financing rate. The effect of location decisions and exports


Thomas von Brasch, Ivan Frankovic and Eero Tölö

Series and number

Discussion Papers no. 955


Statistisk sentralbyrå


Discussion Papers



Number of pages


About Discussion Papers

Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.