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Abstract
This paper analyzes measures that limit firms’ profit shifting activities in a model that incorporates heterogeneous firm productivity and monopolistic competition. Such measures, e.g. thin capitalization rules, have become increasingly widespread as governments have reacted to growing profit shifting activities of multinational companies. However, besides limiting profit shifting, such rules entail costs. As the regulations can only focus on the means to shift profits, not on profit shifting itself, they impose costs on all firms, no matter whether these firms shift profits abroad or not. In the model, these costs force some firms to exit the market. Thus, as the resulting lower competition makes the remaining firms more profitable, regulations to limit profit shifting may even increase the aggregate amount of profits shifted abroad. From a welfare point of view, it can be optimal not to limit profit shifting by such rules.
Item Type: | Journal article |
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Keywords: | profit shifting; heterogeneous firms; tax competition |
Faculties: | Economics > Chairs Economics > Chairs > Seminar for Economic Policy |
Subjects: | 300 Social sciences > 330 Economics |
JEL Classification: | H25, F23, H73 |
URN: | urn:nbn:de:bvb:19-epub-27309-5 |
Alliance/National Licence: | This publication is with permission of the rights owner freely accessible due to an Alliance licence and a national licence (funded by the DFG, German Research Foundation) respectively. |
Language: | English |
Item ID: | 27309 |
Date Deposited: | 08. Feb 2016, 09:08 |
Last Modified: | 04. Nov 2020, 13:07 |
Available Versions of this Item
-
Limiting Profit Shifting in a Model with Heterogeneous Firm Productivity. (deposited 17. Nov 2011, 09:30)
- Limiting Profit Shifting in a Model with Heterogeneous Firm Productivity. (deposited 08. Feb 2016, 09:08) [Currently Displayed]