سیاست مالیاتی مطلوب و سرمایه گذاری مستقیم خارجی تحت ابهام

We analyze the optimal timing of an irreversible foreign direct investment by a foreign firm and the optimal tax policy by a host country under ambiguity. We derive the optimal GDP level at which the foreign firm switches from exporting to a foreign direct investment. Furthermore, we derive the optimal tax policy by the host country, and analyze the effect of an increase in ambiguity on the optimal tax policy. We show that the host country should reduce the optimal corporate tax rate from the host government’s perspective in response to an increase in ambiguity. Our result is different from the one obtained by Pennings (2005) that shows that an increase in risk induces an increase in the optimal corporate tax rate.

Suppose a firm that considers whether to export her product to a host country or to enter the market by undertaking a foreign direct investment (henceforth FDI). Compared with domestic markets, it can be considered that foreign firms that aim to enter foreign markets are faced with more uncertainty about the prospect of foreign markets than that about the prospect of their own domestic markets since economic and political stability in foreign countries cannot be easily predicted. Since uncertainty about the prospect of foreign markets directly leads to uncertainty about the prospect of profits earned in the host country, it can be considered that uncertainty has a negative impact on FDI. As pointed out by Aizenman and Marion (2004), when we analyze FDI, focusing on uncertainty is important since (1) in general, host countries of FDI are developing countries, and (2) business in developing countries is considered to be more uncertain than that in developed countries. Thus, if greater uncertainty has a negative impact on FDI from developed countries, then it might deter economic development in developing countries, which implies that developing countries should adopt policies to encourage FDI. Aizenman and Marion (2004) analyze the impact of risk in vertical and horizontal FDI.1 Based on data on US multinational firms (US Bureau of Economic Analysis), Aizenman and Marion (2004) find empirical evidence that (1) risk has a negative impact on FDI, (2) risk has a greater negative impact on vertical FDI than horizontal FDI, and (3) risk has a negative impact on corporate taxes, which implies that a lower corporate tax significantly increases FDI. On the other hand, Pennings (2005) analyzes effects of increases in risk on host country’s corporate tax rate, and shows that an increase in risk increases the corporate tax rate. This result neither conforms to Aizenman and Marion (2004)’s empirical result nor our intuition that when firms are more uncertain about the prospect of foreign markets, they are reluctant to undertake FDI, which makes host governments reduce their corporate taxes to encourage FDI.2 The purpose of this paper is to generalize the notion of uncertainty to the notion of ambiguity, which is distinguished by risk, and to show that the host government should reduce the optimal corporate tax rate from the host government’s perspective in response to an increase in ambiguity.3 The importance of the distinction between risk and ambiguity is pointed out by Ellsberg (1961), which provides some evidence that people tend to prefer to act on known rather than unknown or vague probabilities. Uncertainty that is captured by a set of probability measures is called Knightian uncertainty or ambiguity. On the other hand, uncertainty that is captured by a unique probability measure is called risk. Ambiguity can be analyzed within the framework of the Maxmin Expected Utility (henceforth MMEU). MMEU axiomatized by Gilboa and Schmeidler (1989) in order to overcome the Ellsberg paradox states that if a certain set of axioms is satisfied, then decision maker’s beliefs are captured by a set of probability measures and her preferences are represented by the minimum of expected utilities over the set of probability measures. MMEU has deepened our understanding of decision maker’s behaviors under ambiguity. If foreign companies are assumed to be less confident about the prospect of economic and political stability in host countries and they are assumed to make decisions very cautiously, then their decisions can be well analyzed within the framework of MMEU. Therefore, this paper adopts a continuous-time model of ambiguity proposed by Chen and Epstein (2002) in order to provide an economic foundation for tax policies adopted by host governments that aim to encourage FDI.4 We consider a situation in which a foreign firm must decide whether to export her product to a host country or to enter the market by undertaking an irreversible FDI under ambiguity.5 In this paper, FDI is irrversible in the sense that once the foreign firm decides to shut down her plant at the host country, the cost of the plant cannot be recovered when she switches to exporting. For the evolution of the GDP level in the host country, we assume that the evolution follows a geometric Brownian motion. Contrary to the standard model in which the evolution of the GDP level is characterized by a geometric Brownian motion based on a single probability measure, we assume that the firm is not perfectly confident about the evolution of the GDP level. In other words, the firm is faced with ambiguity in which her beliefs are characterized by a set of probability measures, not by a single probability measure and her preferences are represented by the minimum of expected utilities over the set of probability measures. We provide four specific models in Sections 3 and 4. In Sections 3.1 and 3.3, we consider Nash bargaining situations under risk and under ambiguity where the foreign firm and the host government jointly maximize their present values of benefits, and we derive the critical GDP level, the optimal corporate tax rate and the optimal subsidy to the cost of investment. These outcomes correspond to efficient solutions to a social planner. In Sections 3.2 and 3.4, we consider non-cooperative situations under risk and under ambiguity in which the foreign firm and the host government maximize their own present values of benefits, and we derive the optimal GDP level, and the optimal corporate tax rate. In the non-cooperative situations, taxation by the host government leads to a double marginalization problem. This is because the firm requires a mark-up over the cost of FDI and the host government charges a mark-up over the required after-tax payoff to the firm. We show that an increase in ambiguity induces a decrease in the value of undertaking FDI, and that an increase in ambiguity induces a decrease in the optimal corporate tax rate from the host government’s perspective. The first claim implies that the negative impact on the value of undertaking FDI makes the firm become more cautious about FDI than before and makes the firm postpone FDI. The second claim states that the host government should reduce the optimal corporate tax rate in response to an increase in ambiguity in order to encourage FDI by the foreign company that is reluctant to undertake FDI and is less confident about the evolution of the GDP level. Furthermore, the second claim also implies that the more ambiguity the foreign company has about the prospect of the GDP level, the greater is the incentive for the host government to reduce the optimal corporate tax rate than to increase. Our results are different from the ones obtained by Pennings (2005) that shows that an increase in risk does not affect the value of undertaking FDI, and that an increase in risk induces an increase in the optimal corporate tax rate from the host government’s perspective.6 The organization of this paper is as follows. Section 2 provides continuous-time models under risk and ambiguity, and derives the value of FDI and the value of undertaking FDI. Section 3 describes a cooperative game and a non-cooperative game framework, respectively. First, we analyze a Nash bargaining situation in which the foreign firm and the host government jointly maximize their surpluses. Second, we analyze a non-cooperative game situation where in the first stage the government fixes the corporate tax rate and in the second stage the firm decides when to enter the market. Furthermore, Section 3 derives the critical level of the GDP in a cooperative game framework and in a non-cooperative game framework, respectively. Section 4 provides sensitivity analyses, and shows that an increase in ambiguity induces a decrease in the value of undertaking FDI, and that an increase in ambiguity induces a decrease in the optimal corporate tax rate from the host government’s perspective.