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Taxing Multinationals in the Presence of Internal Capital Markets

Marko Köthenbürger and Michael Stimmelmayr ()
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Marko Köthenbürger: ETH Zurich and CESifo

Authors registered in the RePEc Author Service: Marko Koethenbuerger

No 2013-02, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: There is ample evidence that internal capital markets incur efficiency costs for multinational enterprises (MNEs). This paper analyzes whether tax avoidance behavior interacts with the costs of running an internal capital market and how policies of competing governments respond to it. We show that the interaction in itself may lead to profit taxes that are too high (low) from a social perspective, provided the costs are attenuated (magnified) by higher profit taxes. We also show that internal efficiency costs might render infrastructure provision inefficiently low. Further, we clarify the implications of the MNE’s decision to set up an internal capital market and the effect of external finance on the behavior of competing governments.

Keywords: fiscal competition; multinational firms; internal efficiency costs; corporate finance; corporate tax avoidance. (search for similar items in EconPapers)
JEL-codes: H25 D21 F23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2013-02
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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http://web.econ.ku.dk/eprn_epru/Workings_Papers/wp-13-02.pdf (application/pdf)

Related works:
Journal Article: Taxing multinationals in the presence of internal capital markets (2016) Downloads
Working Paper: Taxing multinationals in the presence of internal capital markets (2014) Downloads
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