Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/31997
Authors: 
Stöwhase, Sven
Year of Publication: 
2006
Series/Report no.: 
CeGE Discussion Paper 52
Abstract: 
In this paper, we model the tax setting game between two revenue maximizing countries which compete for the location of a single production plant owned by a multinational firm. We introduce the possibility that the multinational can shift a fraction of its profits out of the country where the production plant is located. In this framework, it is investigated how a change in the costs of profit shifting affects equilibrium tax rates. We show that in most cases, equilibrium tax rates of the two countries will be higher under profit shifting than without. Unless profit shifting does not become too easy, the strategic adjustment of profit tax rates will typically harm the multinational firm.
Subjects: 
tax competition
profit shifting
multinational enterprises
discrete investment
JEL: 
F23
H25
H32
Document Type: 
Working Paper

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