Arbeitspapier

Asymmetric Capital Tax Competition with Profit Shifting

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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.

Language
Englisch

Bibliographic citation
Series: Munich Discussion Paper ; No. 2004-23

Classification
Wirtschaft
Multinational Firms; International Business
Business Taxes and Subsidies including sales and value-added (VAT)
Tax Evasion and Avoidance
Fiscal Policies and Behavior of Economic Agents: Firm
Subject
tax competition
asymmetric countries
profit shifting
multinational enterprises

Event
Geistige Schöpfung
(who)
Stöwhase, Sven
Event
Veröffentlichung
(who)
Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
(where)
München
(when)
2004

DOI
doi:10.5282/ubm/epub.454
Handle
URN
urn:nbn:de:bvb:19-epub-454-3
Last update
10.03.2025, 11:47 AM CET

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Object type

  • Arbeitspapier

Associated

  • Stöwhase, Sven
  • Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät

Time of origin

  • 2004

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