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Ma, Jie
Raimondos-Møller, Pascalis
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 5153
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.
profit shifting
competition for FDI
location game
Document Type: 
Working Paper

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