EconPapers    
Economics at your fingertips  
 

Profit Shifting and Investment Effects: The Implications of Zero-Taxable Profits

Marko Köthenbürger, Mohammed Mardan and Michael Stimmelmayr
Authors registered in the RePEc Author Service: Marko Koethenbuerger

No 6895, CESifo Working Paper Series from CESifo

Abstract: Recent empirical research documents a tendency of affiliates of multinational enterprises to bunch around zero reported profit. Setting up a model that allows for profitable and loss-making affiliates of multinationals, we show that profit shifting to a low-tax country as well as a loss-related, inverted-type of transfer pricing from the low-tax to the high-tax country induces bunching. Such bunching promotes investment incentives in the low-tax as well as the high-tax country. In equilibrium, affiliates might over-invest and the bunching-related investment effects generate a tendency for too high profit taxes in equilibrium. The finding contrasts existing literature where transfer pricing incentives are insulated from investment incentives and transfer pricing induces inefficiently low taxes.

Keywords: tax competition; profit shifting; corporate losses; bunching; investment (search for similar items in EconPapers)
JEL-codes: D21 H25 H87 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-acc and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp6895.pdf (application/pdf)

Related works:
Journal Article: Profit shifting and investment effects: The implications of zero-taxable profits (2019) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6895

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().

 
Page updated 2024-04-05
Handle: RePEc:ces:ceswps:_6895