Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/30632 
Year of Publication: 
2009
Series/Report no.: 
CESifo Working Paper No. 2747
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper investigates the effect of fiscal equalization on the efficiency properties of corporate income tax rates chosen by symmetric countries in a Nash tax competition game under the taxation principles of Separate Accounting and Formula Apportionment. Fiscal equalization ensures efficiency if the marginal transfer just reflects the fiscal and pecuniary externalities of tax rates. In contrast to previous studies, tax base equalization (Representative Tax System) does not satisfy this condition, but combining tax revenue and private income equalization does, regardless of which taxation principle is implemented. Under Formula Apportionment, tax base equalization is superior to tax revenue equalization if the wage income externality is sufficiently large.
Subjects: 
separate accounting
formula apportionment
fiscal equalization
JEL: 
H25
H71
H77
Document Type: 
Working Paper
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