Trade and Multinationals: The Effect of Economic Integration on Taxation and Tax Revenue

Hans Jarle Kind (), Guttorm Schjelderup () and Ulltveit-Moe, Karen-Helene

No 4312, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The rising importance of multinationals in the world economy has been accompanied by a rise in trade between affiliates of multinationals located in different countries, and by profits being shifted to low tax countries. The effect of trade barriers on taxation, intra firm trade and profit shifting has largely been ignored by both the trade literature and the public finance literature. This Paper analyses how competition over shifty profits affects tax policy as trade barriers are lowered. The main results are: (i) a reduction in trade barriers unambiguously leads to higher tax revenue for low or intermediate levels of trade costs; and (ii) that the effect on equilibrium tax rates depends on the proportion of the corporate tax bases that is foreign owned and how far economic integration has proceeded.

Keywords: multinationals; tax competition; trade (search for similar items in EconPapers)
JEL-codes: F21 F23 H21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc
Date: 2004-03
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