CIAO DATE: 08/2013
June 2013
American Enterprise Institute for Public Policy Research
In this paper, I explore the detrimental effects of a corporate tax rate increase on FDI in Israel and discuss implications for other open economies. To set the stage for this analysis, I begin by highlighting the recent controversy over Israel’s growing deficit and reviewing Israel’s current economic situation, deteriorating fiscal outlook, inward FDI flows, and current corporate tax system. Next, I offer a brief review of the academic literature on the effect of corporate tax rates on domestic investment generally. I then discuss the shortsightedness of a plan to reduce Israel’s budget deficit by restricting business investment, a key to Israel’s economic success and future growth. Last, I highlight the impact that the proposed tax increases in Israel could have on the United States.
Resource link: Israeli corporate tax policy: A pro-growth system at risk [PDF]