Welfare Effects of Corporate Tax Policy on Regional Economy : A Case Study for Daegu City in Korea

The purpose of this paper is to examine the welfare effects of corporate taxes on Daegu economy to find the efficient corporate tax rate in Daegu, Korea. For this purpose, we will apply simple regional CGE model to the case of Daegu, Korea for simulation analysis. We will then analyze welfare effects of the corporate tax on Daegu economy and try to determine the efficient corporate tax rate for Daegu regional economy. We used data in 2007 to set up base economy for Daegu regional economy. Our regional model is composed of four sectors and the sectors are agriculture, manufacture, sales and construction. Under the constraints of less than 20% tax revenue increase, we applied four different alternative cases. The most efficient corporate tax rates for four sectors under the within 20% tax revenue increase constraint are 16.5% for agriculture, 20.8% for manufacture sectors, 20.4% for sales sector and 23.4% for construction sector.