Multinationals, tax competition and outside options

Trond Olsen and Petter Osmundsen

No 2010/13, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: We analyse tax competition when a multinational firm has invested in two countries but also has an outside option, e.g., towards a third country. An interesting finding is that more attractive outside options for firms may constitute a win-win situation; the firm as well as its present host countries may gain when this occurs. The reason that it benefits the host countries is that an enhanced outside option reduces the inefficiencies of tax competition. An implication of the result is that better outside options for multinational firms may reduce the gains from host countries’ policy coordination and thus reduce those countries’incentives to coordinate their policies. Also, with a development where outside options become more accessible, the perceived costs of tax competition, e.g., in terms of underprovision of public goods, may be overestimated. Our findings may also have implications for international negotiations, since it provides an argument for mutual reduction of entry barriers, as this may improve outside options.

Keywords: Tax competition; mobility; common agency; countervailing incentives (search for similar items in EconPapers)
JEL-codes: D82 H21 L51 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-09-30
New Economics Papers: this item is included in nep-acc and nep-pbe
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Related works:
Journal Article: Multinationals, tax competition and outside options (2011)
Working Paper: Multinationals, tax competition, and outside options (2009)
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