Asymmetric Capital Tax Competition with Profit Shifting

Stöwhase, Sven (2004): Asymmetric Capital Tax Competition with Profit Shifting. Discussion Papers in Economics 2004-23

Abstract

This paper analyses capital tax competition between jurisdictions of different size when multinational firms can shift some fraction of their tax base between them. For the case of revenue maximizing governments, we show that introducing profit shifting will not generally increase downward pressure on tax rates. We find that profit shifting decreases the tax-base elasticity of the low tax jurisdiction while increasing the elasticity of the high tax jurisdiction. Therefore, by the direct (impact) effect, tax rates will converge as a result of additional profit shifting opportunities. In general equilibrium, however, tax rates may decrease or increase in both jurisdictions.

• Item Type: Paper (Discussion Paper)
• Keywords: tax competition ; asymmetric countries ; profit shifting ; multinational enterprises
• Collections: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Financial Markets; Economics > Discussion Papers in Economics > International Trade; Economics > Discussion Papers in Economics > Public Finance
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: F23, H25, H26, H32
• Language: English