EconPapers    
Economics at your fingertips  
 

Profit shifting and investment effects: The implications of zero-taxable profits

Marko Koethenbuerger, Mohammed Mardan () and Michael Stimmelmayr ()

Journal of Public Economics, 2019, vol. 173, issue C, 96-112

Abstract: Recent empirical research documents a tendency of multinational enterprise affiliates to bunch around zero reported profit. We set up a theoretical model of multinational firm behavior in which we allow for corner solutions in the choice of the optimal transfer price due to insufficient profits or losses of affiliates. Such constraints in the choice of the transfer price induce bunching and generate investment effects in the low-tax as well as the high-tax country. In equilibrium, affiliates might overinvest and the investment effects generate a tendency for too high profit taxes. The analysis provides a micro-foundation for the investment effects that result from transfer pricing. The finding stands in contrast to the existing literature where transfer pricing choices are unconstrained.

Keywords: Tax competition; Profit shifting; Corporate losses; Transfer price; Bunching; Investment (search for similar items in EconPapers)
JEL-codes: H25 D21 H87 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S004727271930009X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Profit Shifting and Investment Effects: The Implications of Zero-Taxable Profits (2018) Downloads
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: https://EconPapers.repec.org/RePEc:eee:pubeco:v:173:y:2019:i:c:p:96-112

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-10-04
Handle: RePEc:eee:pubeco:v:173:y:2019:i:c:p:96-112