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Taxing multinationals under union wage bargaining

Nadine Riedel ()

No 1106, Working Papers from Oxford University Centre for Business Taxation

Abstract: This paper investigates corporate taxation under separate accounting (SA) and formula apportionment (FA) in a model with union wage bargaining and multinational firms. Under SA, we find that increases in the corporate tax rate raise the wage level of domestic workers, while they lower the remuneration of foreign workers. The main insight emerging from a tax competition game is that the endogenous wage level gives rise to an ambiguous fiscal externality, which may dampen the race-to-the-bottom in corporate tax rates. A switch to a tax system with FA principles reverses the impact of corporate taxes on negotiated wages. While increases in the corporate tax rate reduce domestic wages, they raise the wage level of foreign workers. In a tax competition game, the endogenous wage level gives rise to a positive fiscal externality that enforces the race-to-the-bottom in corporate tax rates.

Keywords: corporate taxation; multinational firm; union wage bargaining (search for similar items in EconPapers)
JEL-codes: H3 H5 J7 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-acc, nep-bec and nep-lab
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