Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107287
Authors: 
Ma, Jie
Raimondos-Møller, Pascalis
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5153
Abstract: 
When countries compete for the location of a new multinational plant they need to be aware of the profit shifting opportunities this new plant creates for the global multinational firm. By modelling explicitly the multinational's intra-firm transactions, we show that the home market advantage that large countries have due to their size will be counteracted by such profit shifting opportunities. As a result of this, large countries will not be able to capitalize on their size and sustain high corporate taxes. We show that, on the basis of these profit shifting opportunities, a small country can easily win the location game ahead of a large country. How lenient the small country is in implementing transfer pricing regulations turns out to be an important variable in such location games.
Subjects: 
profit shifting
competition for FDI
location game
JEL: 
H25
F23
Document Type: 
Working Paper

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