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Title:Heterogeneous Firms, "Profit Shifting" FDI and International Tax Competition PDF Logo
Authors:Krautheim, Sebastian
Schmidt-Eisenlohr, Tim
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Policy Issues of Firm Heterogeneity and Trade B5-V1
Abstract:Larger firms are more likely to use tax haven operations to exploit international tax differences. We study a tax game between a large country and a tax haven modeling heterogeneous monopolistic firms, which can shift profits abroad. We show that a higher degree of firm heterogeneity (a mean-preserving spread of the cost distribution) increases the degree of tax competition, i.e. it decreases the equilibrium tax rate of the large country, leads to higher outflows of its tax base and thus decreases its equilibrium tax revenue. Similar effects hold for a higher substitutability across varieties. We find that models with homogeneous firms understate the strength of tax competition.
Subjects:heterogeneous firms
tax competition
profit shifting
tax havens
JEL:F23
H25
H87
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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