Economics of Macro Issues 7th Edition by Roger LeRoy Miller,Daniel Benjamin

Exercise 5

Suppose you are about to start an innovative, high-tech company in one of two countries. You expect before-tax profits to be about $100,000 per year. Both nations have similar living conditions, climate, and other amenities, but the tax rate in nation A is 17 percent, while the tax rate in nation B is 7 percent. By how much will your annual after-tax profits differ between the two countries? From a business perspective, which country is a preferred location? How will your choice affect economic growth in the two nations, even if by only the tiniest of margins?