Heterogeneous firms, "Profit Shifting" FDI and international tax competition

Sebastian Krautheim and Tim Schmidt-Eisenlohr

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Abstract: Larger firms are more likely to use tax haven operations to exploit international tax differences. We study a tax game between a large country and a tax haven modeling heterogenous monopolistic firms, which can shift profits abroad. We shows that a higher degree of firm heterogeneity (a mean-preserving spread of the cost distribution) increases the degree of tax competition, i.e. it decreases the equilibrium tax rate of the large country, leads to higher outflows of its tax base and thus decreases its equilibrium tax revenue. Similar effects hold for a higher substitutability across varieties. We find that models with homogeneous firms understate the strenght of tax competition.

Keywords: Heterogeneous firms; tax competition; profit shifting; tax havens.; tax havens; Firmes hétérogènes; concurrence fiscale; transfert de profits; paradis fiscaux. (search for similar items in EconPapers)
Date: 2009-10
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00442818v1
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Published in 2009

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Related works:
Journal Article: Heterogeneous firms, 'profit shifting' FDI and international tax competition (2011)
Journal Article: Heterogeneous firms, ‘profit shifting’ FDI and international tax competition (2011)
Working Paper: Heterogeneous Firms, 'Profit Shifting' FDI and International Tax Competition (2009)
Working Paper: Heterogeneous Firms, "Profit Shifting" FDI and International Tax Competition (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00442818

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