Multinational Capital Structure and Tax Competition

Matthias Wrede

No 200934, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper analyzes tax competition when welfare maximizing jurisdictions levy source-based corporate taxes and multinational enterprises choose tax-efficient capital-to-debt ratios. Under separate accounting, multinationals shift debt from low-tax to high-tax countries. The Nash equilibrium of the tax competition game is characterized by underprovision of publicly provided goods. Under formula apportionment, the country-specific capital-to-debt ratio of a multinational's affiliate is independent of the jurisdiction's tax rate. Public good provision is either too large or too small. If the formula is predominately based on capital shares and if there is a positive debt externality there is clearly underprovision under formula apportionment.

Keywords: Multinational enterprises; financial policy; profit shifting; corporate taxation; tax competition. (search for similar items in EconPapers)
JEL-codes: H25 H42 H73 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2009
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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https://www.uni-marburg.de/en/fb02/research-groups ... rs/34-2009_wrede.pdf First version, 2009 (application/pdf)

Related works:
Working Paper: Multinational Capital Structure and Tax Competition (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:200934

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