Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60999
Authors: 
Krautheim, Sebastian
Schmidt-Eisenlohr, Tim
Year of Publication: 
2012
Series/Report no.: 
CESifo Working Paper: Public Finance 3867
Abstract: 
Rent-sharing between firm owners and workers is a robust empirical finding. If workers bargain with firms, information on the actual surplus is essential. When the firm can use profit shifting to create private information on the surplus, it can thereby reduce its wage bill. We study how rent sharing and this wage incentive for profit shifting affect the ability of governments to tax multinational companies in a standard model of international tax competition. We find that if firms only have a tax incentive for profit shifting, rent-sharing decreases the competitive pressure on the large country and leads to higher equilibrium tax rates. When we allow for the wage channel, this result can change. If the wage incentive is sufficiently strong, rent-sharing increases the competitive pressure on the large country, implying a lower equilibrium tax rate.
Subjects: 
wages
tax competition
rent-sharing
profit shifting
tax havens
private information
JEL: 
F23
H25
H73
Document Type: 
Working Paper

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