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Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed?

Sam Bucovetsky () and Andreas Haufler ()

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: We analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings. Governments are able to commit to long-run tax discrimination policies before firms’ decisions are made and before statutory capital tax rates are chosen non-cooperatively. Whether a coordinated reduction in the tax preferences granted to mobile firms is beneficial or harmful for the competing countries depends critically on the elasticity with which the firms’ organizational structure responds to tax discrimination incentives. A model extension with countries of different size shows that small countries are likely to grant more tax preferences than larger ones, along with having lower effective tax rates.

Date: 2008
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Published in Journal of International Economics 1 74(2008): pp. 188-201

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Related works:
Journal Article: Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed (2008) Downloads
Working Paper: Tax Competition when Firms Choose their Organizational Form: Should Tax Loopholes for Multinationals be Closed? (2005) Downloads
Working Paper: Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed? (2005) Downloads
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