Should profit shifting be prohibited? The importance of timing

Robert Philipowski ()
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Robert Philipowski: Universität Bonn

Economics Bulletin, 2016, vol. 36, issue 4, 2365-2367

Abstract: Measures against profit shifting, such as transfer pricing or thin capitalization rules, impose compliance costs even on firms which do not shift their profits. It is therefore not at all clear whether and under which circumstances such measures are desirable. In this note we investigate the influence of the timing of decisions on this question. In a very general setting we show that prohibiting profit shifting is less desirable if tax havens act as Stackelberg followers than if they take their policy decisions simultaneously with normal countries.

Keywords: Profit shifting; Tax havens; Tax competition; Stackelberg equilibrium (search for similar items in EconPapers)
JEL-codes: H2 H7 (search for similar items in EconPapers)
Date: 2016-12-10
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