Competition for FDI and Profit Shifting: On the Effects of Subsidies and Tax Breaks

Oscar Amerighi () and Giuseppe De Feo

FinanzArchiv: Public Finance Analysis, 2014, vol. 70, issue 3, 374-404

Abstract: We investigate competition for FDI within a region when a foreign multinational firm can profitably exploit differences in statutory corporate tax rates by shifting taxable profits to lower-tax jurisdictions. In such a framework we show that targeted tax competition may lead to higher welfare for the region as a whole than lump-sum subsidies when the difference in statutory corporate tax rates and/or their average is high enough. Tax competition can also increase overall surplus by changing the firm's investment decision when profit-shifting motivations induce the firm to locate in the (before-tax) least profitable country.

Keywords: policy competition for FDI; profit shifting; tax discrimination (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 H32 H73 (search for similar items in EconPapers)
Date: 2014
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Related works:
Working Paper: Competition for FDI and profit shifting: On the effects of subsidies and tax breaks (2013)
Working Paper: Competition for FDI and profit shifting: On the effects of subsidies and tax breaks (2013)
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DOI: 10.1628/001522108X684510

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