Why the European Union Should Adopt Formula Apportionment with a Sales Factor

Thomas Eichner and Marco Runkel ()

Scandinavian Journal of Economics, 2008, vol. 110, issue 3, pages 567-589

Abstract: Using a two-country tax competition model with a multinational enterprise (MNE), this paper addresses the question of whether the European Union should replace separate accounting (SA) in corporate income taxation by formula apportionment (FA) and, if so, which apportionment factors should be used. Our main result is that FA with a sales factor may mitigate or even eliminate fiscal externalities caused by the countries' tax policy. Hence, our analysis provides a microfoundation for the sales apportionment factor. In an empirical calibration to the EU-15 we show that the transition from SA to FA with a sales-only formula raises average tax rates by 2% and average tax revenues by 1 billion euros or 0.1% of GDP. These effects result in an increase of welfare. Copyright © The editors of the "Scandinavian Journal of Economics" 2008 .

Date: 2008
View citations in EconPapers

Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9442.2008.00551.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bla:scandj:v:110:y:2008:i:3:p:567-589

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0347-0520

Access Statistics for this article

Scandinavian Journal of Economics is edited by Jonas Agell, Nils Gottfries and Espen R. Moen

More articles in Scandinavian Journal of Economics from Blackwell Publishing
Series data maintained by Christopher F. Baum ().