Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/180352 
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7090
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper analyzes tax competition between countries which differ in their country-specific risk. We show that the outcome of asymmetric tax competition crucially depends on the ability of multinational firms to shift profits. With high costs of profit shifting, higher-risk countries set lower tax rates than lower-risk countries whereas the opposite is true if the costs of profit shifting are low. The results provide an explanation for the patterns observed in the corporate income tax policies across countries and regions differing in their level of development. Moreover, for intermediate costs of profit shifting, we show that also a country’s absolute risk level affects countries’ tax rate setting. These results carry important implication for the empirical tax competition literature.
Subjects: 
tax competition
country risk
developing countries
asymmetric countries
JEL: 
H25
O23
F23
Document Type: 
Working Paper
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