Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223487
Authors: 
Gresik, Thomas A.
Schindler, Dirk
Schjelderup, Guttorm
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8415
Abstract: 
We study the link between a country’s institutional quality in tax collection and its optimal corporate tax policies in a model of heterogeneous multinationals that can shift income using both debt and transfer prices. Countries with weak institutional quality can be made worse off adopting policies that attract FDI as the benefits from higher wages and production are more than offset by tax base erosion. Countries with moderate institutional quality can gain from under-utilizing their ability to collect taxes, since the benefit of attracting more FDI outstrips the benefit of increased tax revenue. Countries with very strong institutions benefit from FDI and should utilize their full ability to collect taxes.
Subjects: 
FDI
thin capitalization rules
transfer pricing
institutional quality
JEL: 
F23
H26
H32
F68
Document Type: 
Working Paper

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