A tax competition approach to resource taxation in developing countries

Arnaud Bourgain and Skerdilajda Zanaj

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: In this paper, we investigate the effect of cost misreporting of extractive firms on the optimal design of tax policies. We build a two-period, two-country model where governments aim to attract a foreign-owned multinational firm to raise tax revenues by levying a pro.t tax and a royalty. The firm overstates its production costs and decides in which country to locate. We find that cost overstatement pushes royalties upward but remains detrimental for tax revenues as well as capital invested by the firm. The mining country that attracts the extractive firm is often the country with the highest coefficient of overstatement. However, the firm may locate in the country with the lowest overstatement and lowest royalty if both countries have the same profit tax.

Keywords: Resource countries Rent taxes; Royalties; Cost misreporting (search for similar items in EconPapers)
JEL-codes: H25 H32 O13 (search for similar items in EconPapers)
Date: 2018
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Related works:
Journal Article: A tax competition approach to resource taxation in developing countries (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:18-21

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