Limiting Profit Shifting in a Model with Heterogeneous Firm Productivity

Arbeitspapier

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 this 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 may even be optimal no to limit profit shifting at all.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BGPE Discussion Paper ; No. 112

Classification and Topics

• Classification: Wirtschaft ; Business Taxes and Subsidies including sales and value-added (VAT) ; State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects ; Multinational Firms; International Business
• Subject: profit shifting ; heterogeneous firms ; tax competition ; Multinationales Unternehmen ; Gewinnverlagerung ; Steuerpolitik ; Steuerwirkung ; Kosten ; Produktivität ; Steuerwettbewerb ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Langenmayr, Dominika
• Event: Veröffentlichung
• (who): Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE)
• (where): Nürnberg
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/73396
• Last update: 10.03.2025, 11:41 AM CET