Local taxation of global corporations: a simple solution
Jean Hindriks (),
Susana Peralta and
No 9350, CEPR Discussion Papers from C.E.P.R. Discussion Papers
The explosion of globalization has increased firms incentives to exploit international tax differentials to their benefit. In this paper we consider a simple world with two countries with different market sizes and two multinationals with a division in each country. Both countries use a source-based profit tax on multinationals, who compete a la Cournot in each local market and use profit shifting based on the tax differential. We assess policies aimed to mitigate inefficient tax choices and show that tax harmonization cannot benefit the small country which adopts a lower tax rate to channel a tax revenue from the large country. We propose a simple revenue sharing mechanism in which countries share equal proportion of their own revenue with each other. It is shown that revenue sharing increases equilibrium tax rates in each country, reduces the tax differential, and benefits both countries despite of reallocation of resources from the high tax to the low tax country.
Keywords: heterogeneous countries; profit shifting; revenue sharing; tax competition (search for similar items in EconPapers)
JEL-codes: F23 F68 H25 H70 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at firstname.lastname@example.org
Journal Article: Local Taxation of Global Corporation: A Simple Solution (2014)
Working Paper: Local taxation of global corporation: a simple solution (2014)
Working Paper: Local taxation of global corporation: a simple solution (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:9350
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=9350
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().