Exploring Residual Profit Allocation

Sebastian Beer, Ruud de Mooij, Shafik Hebous, Michael Keen and Li Liu

American Economic Journal: Economic Policy, 2023, vol. 15, issue 1, 70-109

Abstract: Residual profit allocation (RPA) schemes have come to prominence in discussions of international tax reform but with almost nothing known about their economic impact. These schemes tax multinationals by allocating their "routine" profits to source countries and sharing their remaining "residual" profit across countries on some formulaic basis. This paper explores the implications, conceptual and empirical, of moving to some form of RPA. Residual profits are estimated to be substantial and concentrated in relatively few multinational enterprises. The impact on tax revenue appears beneficial for developing countries. Aggregate production efficiency is unlikely to increase unless routine profits are lightly taxed.

JEL-codes: F23 H25 H87 L25 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Working Paper: Exploring Residual Profit Allocation (2020)
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DOI: 10.1257/pol.20200212

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