Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/176914
Authors: 
Köthenbürger, Marko
Mardan, Mohammed
Stimmelmayr, Michael
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper 6895
Abstract: 
Recent empirical research documents a tendency of affiliates of multinational enterprises to bunch around zero reported profit. Setting up a model that allows for profitable and loss-making affiliates of multinationals, we show that profit shifting to a low-tax country as well as a loss-related, inverted-type of transfer pricing from the low-tax to the high-tax country induces bunching. Such bunching promotes investment incentives in the low-tax as well as the high-tax country. In equilibrium, affiliates might over-invest and the bunching-related investment effects generate a tendency for too high profit taxes in equilibrium. The finding contrasts existing literature where transfer pricing incentives are insulated from investment incentives and transfer pricing induces inefficiently low taxes.
Subjects: 
tax competition
profit shifting
corporate losses
bunching
investment
JEL: 
H25
D21
H87
Document Type: 
Working Paper

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