Corporate tax regime and international allocation of ownership

Johannes Becker and Marco Runkel ()

Regional Science and Urban Economics, 2013, vol. 43, issue 1, 8-15

Abstract: Would the introduction of a corporate tax system with consolidated tax base and formula apportionment lead to socially wasteful mergers and acquisitions across borders? This paper analyzes a two-country model in which firms consider acquisitions of already existing target firms in a high-tax country and a low-tax country. Two systems of corporate taxation are compared, a system with separate accounting and a system with tax base consolidation and formula apportionment. It is shown that, under separate accounting, the number of acquisitions is inefficiently high in both the high-tax and the low-tax country. Under formula apportionment, the number of acquisitions is inefficiently high in one country and inefficiently low in the other country. If both countries engage in tax competition, a novel externality arises that, under symmetry, aggravates the underprovision of public goods under both corporate tax regimes.

Keywords: Corporate taxation; Separate accounting; Formula apportionment (search for similar items in EconPapers)
JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Corporate tax regime and international allocation of ownership (2010)
Working Paper: Corporate tax regime and international allocation of ownership (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:43:y:2013:i:1:p:8-15

DOI: 10.1016/j.regsciurbeco.2012.11.002

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