Advanced Search
MyIDEAS: Login to save this article or follow this journal

The proximity-concentration trade-off with profit shifting

Contents:

Author Info

  • Amerighi, Oscar
  • Peralta, Susana

Abstract

We study a firm which serves two unequally-sized jurisdictions and must choose where to locate its first production plant, and whether to open a second plant to serve the other market through local sales rather than exports. An exporter pays taxes only to the region where it locates its single production plant. A double-plant multi-regional firm pays taxes in both regions, but may shift taxable profits across them, at a cost. We show that the standard trade-off between fixed and trade costs is modified, depending on both the average tax of, and the tax difference between, the two regions. We also find that increased market size asymmetry may make it more likely that the firm builds a second production plant. From a total-welfare viewpoint, it is always desirable to control the firm's tax avoidance ability when the double-plant structure is given. However, the fact that the firm may react to corporate taxation by changing its production structure may be a reason not to curb profit-shifting activities.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6WMG-4YM7VWC-2/2/25a1d3a0183ba652feaae9e98ebc8368
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 68 (2010)
Issue (Month): 1 (July)
Pages: 90-101

as in new window
Handle: RePEc:eee:juecon:v:68:y:2010:i:1:p:90-101

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Multi-regional firms Exports Horizontal FDI Corporate taxation Profit shifting;

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  2. Zeng, Dao-Zhi, 2008. "New economic geography with heterogeneous preferences: An explanation of segregation," Journal of Urban Economics, Elsevier, Elsevier, vol. 63(1), pages 306-324, January.
  3. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete over Corporate Tax Rates?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3400, C.E.P.R. Discussion Papers.
  4. OTTAVIANO, Gianmarco & THISSE, Jacques-François, . "Agglomeration and economic geography," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1725, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. PERALTA, Susana & WAUTHY , Xavier & van YPERSELE, Tanguy, 2003. "Should countries control international profit shifting ?," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2003072, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Büttner, Thiess & Ruf, Martin, 2004. "Tax Incentives and the Location of FDI: Evidence from a Panel of German Multinationals," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 04-76, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Clausing, Kimberly A., 2003. "Tax-motivated transfer pricing and US intrafirm trade prices," Journal of Public Economics, Elsevier, Elsevier, vol. 87(9-10), pages 2207-2223, September.
  8. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate tax systems and cross country profit shifting," Munich Reprints in Economics, University of Munich, Department of Economics 20419, University of Munich, Department of Economics.
  9. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, Elsevier, vol. 88(6), pages 1149-1168, June.
  10. Kristian Behrens & Pierre M. Picard, 2008. "Bidding for Horizontal Multinationals," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(6), pages 1244-1278, December.
  11. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262633078, December.
  12. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 136(2), pages 284-314, June.
  13. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 483-99, June.
  14. Eric J. Bartelsman & Roel Beetsma, 2000. "Why Pay More? Corporate Tax Avoidance through Transfer Pricing in OECD Countries," CESifo Working Paper Series, CESifo Group Munich 324, CESifo Group Munich.
  15. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 2001. "Corporate Taxation, Multinational Enterprise and Economic Integration," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2753, C.E.P.R. Discussion Papers.
  16. Thomas A. Gresik, 2001. "The Taxing Task of Taxing Transnationals," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 39(3), pages 800-838, September.
  17. Sam Bucovetsky & Andreas Haufler, 2005. "Tax Competition when Firms Choose their Organizational Form: Should Tax Loopholes for Multinationals be Closed?," CESifo Working Paper Series, CESifo Group Munich 1625, CESifo Group Munich.
  18. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, Elsevier, vol. 68(3), pages 335-367, June.
  19. Harry Huizinga & Luc Laeven, 2006. "International profit shifting within multinationals: a multi-country perspective," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 260, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  20. Swenson, Deborah L., 2001. "Tax Reforms and Evidence of Transfer Pricing," National Tax Journal, National Tax Association, National Tax Association, vol. 54(n. 1), pages 7-26, March.
  21. O. Amerighi, 2006. "Transfer Pricing and Enforcement Policy in Oligopolistic Markets," Working Papers, Dipartimento Scienze Economiche, Universita' di Bologna 567, Dipartimento Scienze Economiche, Universita' di Bologna.
  22. Kashif S. Mansori & Alfons J. Weichenrieder, 2001. "Tax Competition and Transfer Pricing Disputes," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 58(1), pages 1-, December.
  23. Kristian Behrens & Yasusada Murata, 2008. "City Size and the Henry George Theorem under Monopolistic Competition," Cahiers de recherche, CIRPEE 0834, CIRPEE.
  24. Richard Baldwin; Paul Krugman, 2001. "Agglomeration, Integration and Tax Harmonization," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 01-2001, Economics Section, The Graduate Institute of International Studies.
  25. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, National Tax Association, vol. 52(n. 2), pages 305-22, June.
  26. Pascalis Raimondos-M¯ller, 2002. "Transfer pricing rules and competing governments," Oxford Economic Papers, Oxford University Press, Oxford University Press, vol. 54(2), pages 230-246, April.
  27. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 86(4), pages 959-972, November.
  28. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
  29. Hines, J.R. & Rice, E.M., 1990. "Fiscal Paradise: Foreign Tax Havens And American Business," Papers, Princeton, Woodrow Wilson School - Discussion Paper 56, Princeton, Woodrow Wilson School - Discussion Paper.
  30. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, Elsevier, vol. 46(2), pages 183-203, December.
  31. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(2), pages 169-189, Spring.
  32. Markusen, James R. & Venables, Anthony J., 2000. "The theory of endowment, intra-industry and multi-national trade," Journal of International Economics, Elsevier, Elsevier, vol. 52(2), pages 209-234, December.
  33. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer, Springer, vol. 10(6), pages 673-93, November.
  34. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
  35. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, Elsevier, vol. 71(1), pages 121-139, January.
  36. Pinto, Santiago M., 2007. "Corporate profit tax, capital mobility, and formula apportionment," Journal of Urban Economics, Elsevier, Elsevier, vol. 62(1), pages 76-102, July.
  37. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, Elsevier, vol. 30(2), pages 167-181, September.
  38. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 21(3), pages 423-451, November.
  39. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, Elsevier, vol. 19(3), pages 356-370, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kenji Matsui, 2012. "Auditing internal transfer prices in multinationals under monopolistic competition," International Tax and Public Finance, Springer, Springer, vol. 19(6), pages 800-818, December.
  2. HINDRIKS, Jean & PERALTA, Susana & WEBER, Shlomo, 2013. "Local taxation of global corporation: a simple solution," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2013011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:juecon:v:68:y:2010:i:1:p:90-101. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.