Competition for FDI and profit shifting: On the effects of subsidies and tax breaks

Oscar Amerighi () and Giuseppe De Feo

No 56, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: We investigate competition for FDI within a region when a foreign multinational firm can profitably exploit differences in statutory corporate tax rates by shifting taxable profits to lower-tax jurisdictions. In such framework we show that targeted tax competition may lead to higher welfare for the region as a whole than lump-sum subsidies when the difference in statutory corporate tax rates and/or their average is high enough. Tax competition is also preferable from an efficiency point of view (overall surplus) by changing the firm's investment decision when profit shifting motivations induce the firm to locate in the (before tax) least profitable country.

Keywords: Policy competition for FDI; Profit shifting; Tax discrimination (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 H32 H73 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2013-11
New Economics Papers: this item is included in nep-acc
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http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0056.pdf (application/pdf)

Related works:
Journal Article: Competition for FDI and Profit Shifting: On the Effects of Subsidies and Tax Breaks (2014)
Working Paper: Competition for FDI and profit shifting: On the effects of subsidies and tax breaks (2013)
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