Local Taxation of Global Corporation: A Simple Solution
Jean Hindriks (),
Susana Peralta and
Shlomo Weber ()
Annals of Economics and Statistics, 2014, issue 113-114, 37-65
The globalization of world markets has prompted firms' search for benefits of international tax differentials. In this paper we consider a simple world with two countries and two multinationals with a division in each country. Both countries, that differ in market size, use a source-based profit tax on multinationals, who compete à la Cournot in local markets and use profit shifting based on the tax differential. We assess policies aimed to mitigate inefficient tax choices and show that tax harmonization cannot benefit the small country. We then propose a simple revenue sharing mechanism in which countries share equal proportion of their own revenue with each other, and show that revenue sharing increases equilibrium tax rates in each country, reduces the tax differential, and benefits both countries. Lastly we show that contrary to revenue sharing, the tax base equalization formula raises a fundamental equity issue.
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Working Paper: Local taxation of global corporation: a simple solution (2014)
Working Paper: Local taxation of global corporation: a simple solution (2013)
Working Paper: Local taxation of global corporations: a simple solution (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2014:i:113-114:p:37-65
Access Statistics for this article
Annals of Economics and Statistics is currently edited by Laurent Linnemer
More articles in Annals of Economics and Statistics from GENES Contact information at EDIRC.
Bibliographic data for series maintained by Laurent Linnemer ().