Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/30123
Authors: 
Wrede, Matthias
Year of Publication: 
2009
Series/Report no.: 
Joint discussion paper series in economics 2009,34
Abstract: 
This paper analyzes tax competition when welfare maximizing jurisdictions levy source-based corporate taxes and multinational enterprises choose tax-efficient capital-to-debt ratios. Under separate accounting, multinationals shift debt from low-tax to high-tax countries. The Nash equilibrium of the tax competition game is characterized by underprovision of publicly provided goods. Under formula apportionment, the country-specific capital-to-debt ratio of a multinational's affiliate is independent of the jurisdiction's tax rate. Public good provision is either too large or too small. If the formula is predominately based on capital shares and if there is a positive debt externality there is clearly underprovision under formula apportionment.
Subjects: 
Multinational enterprises
financial policy
profit shifting
corporate taxation
tax competition
JEL: 
H25
H42
H73
Document Type: 
Working Paper

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