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Profit Tax Competition and Formula Apportionment

Rüdiger Pethig () and Andreas Wagener

No 1011, CESifo Working Paper Series from CESifo

Abstract: We analyse tax competition with corporate income taxes in a common market where tax revenues are allocated according to an apportionment formula. Generally, tax competition is sharper (i.e., equilibrium tax rates are lower) the more tax-elastic is the apportionment formula. This depends on the properties of production technologies. In particular: (i) With fixed labour input, tax competition is sharpest if apportionment is based on property-shares, followed by the sales- and payroll-shares. (ii) If capital and labour are endogenous and technologies are Cobb-Douglas, tax competition under the property- and the payroll-share rule is sharper than under the sales-share formula. Factor elasticities determine whether payroll- or property-share apportionment generates sharper tax competition.

Keywords: tax competition; formula apportionment (search for similar items in EconPapers)
JEL-codes: D21 D81 (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-acc
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Journal Article: Profit tax competition and formula apportionment (2007) Downloads
Working Paper: Profit Tax Competition and Formula Apportionment (2003) Downloads
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