Tax competition in the presence of profit shifting

Steeve Mongrain, David Oh and Tanguy van Ypersele
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Steeve Mongrain: SFU.ca - Simon Fraser University = Université Simon Fraser
David Oh: Canada Mortgage and Housing Corporation

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Abstract: The popular view is that governments should crack down on tax avoidance by multinational corporations, but in practice, lax anti-profit-shifting policies are common. Here, we analyze how controlling profit shifting influences fiscal competition. Equilibrium tax rates are determined by the elasticities of two components: retained profit and capital mobility. Anti-profit-shifting policies decrease the elasticity of the first, but increase the elasticity of the second. The impact of these policies on equilibrium tax rates is then ambiguous. We show that there are cases in which laxer policies increase equilibrium tax rates and countries' well-being by favoring investments. We use estimates of different elasticities to show that our model can support lax enforcement.

Keywords: Tax competition; Profit shifting; International taxation; Capital mobility (search for similar items in EconPapers)
Date: 2023-08-01
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-04184030
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Published in Journal of Public Economics, 2023, 224, pp.104940. ⟨10.1016/j.jpubeco.2023.104940⟩

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Related works:
Journal Article: Tax competition in the presence of profit shifting (2023)
Working Paper: Tax Competition in Presence of Profit Shifting (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04184030

DOI: 10.1016/j.jpubeco.2023.104940

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