Tax Rate Harmonization, Renegotiation and Asymmetric Tax Competition for Profits with Repeated Interaction

Wolfgang Eggert and Jun-ichi Itaya ()

No 3437, CESifo Working Paper Series from CESifo

Abstract: This paper analyzes a model of corporate tax competition with repeated interaction and with strategic use of profit shifting within multinationals. We show that international tax coordination is more likely to prevail if the degree of asymmetry in terms of productivity differences between countries is smaller, or if concealment costs of profit shifting are larger when the tax authorities adopt grim-trigger strategies. Allowing for renegotiation in the tax harmonization process generally requires more patient tax authorities to support tax harmonization as a subgame perfect equilibrium. We find somewhat paradoxical situations where higher costs of profit shifting may make international tax arrangements less sustainable under weakly-renegotiation-proof strategies.

Keywords: human capital investment; endogenous risk; learning effort; optimal taxation; public education (search for similar items in EconPapers)
JEL-codes: F23 H25 H87 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Tax Rate Harmonization, Renegotiation, and Asymmetric Tax Competition for Profits with Repeated Interaction (2014)
Working Paper: Tax Rate Harmonization, Renegotiation and Asymmetric Tax Competition for Profits with Repeated Interaction (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3437

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