Foreign direct investment under oligopoly: Profit shifting or profit capturing?
AbstractIn this paper a model of taxation of foreign source corporate income is developed, when the output market is not competitive. Profit shifting policies, similar to those in the new trade literature, are also present in the case of foreign direct investment (FDI). There are, however, important differences to the new trade theory since in case of FDI (i) corporate taxation and double taxation relief are the policy instruments rather than output/revenue taxes, (ii) countries are not symmetric in the sensee that the host country has the first right to tax the multinational's profit and the home country reacts to this by providing double taxation relief, and (iii) output but not corporate taxation is specific to strategic industries. It is argued that (a) variants of a tax credit are analogous to export subsidies, (b) when the home country operates a tax credit system the host country's incentive to capture profits by raising its tax is bounded under imperfect competition, (c) the home country should imitate the host policy wehen the host country offers a tax holiday, and (d) in the presence of non-competitive sectors double taxation relief is a good instrument to target strategic industries.
Download InfoIf 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.
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 InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 60 (1996)
Issue (Month): 3 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578
Other versions of this item:
- Eckhard Janeba, 1993. "Foreign Direct Investment under Oligopoly: Profit Shifting of Profit Capturing?," Discussion Paper Serie A 420, University of Bonn, Germany.
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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.:
- Jonathan Eaton & Gene M. Grossman, 1986.
"Optimal Trade and Industrial Policy Under Oligopoly,"
NBER Working Papers
1236, National Bureau of Economic Research, Inc.
- Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 383-406, May.
- repec:fth:louvco:9073 is not listed on IDEAS
- Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
- Gordon, Roger H, 1992.
" Can Capital Income Taxes Survive in Open Economies?,"
Journal of Finance,
American Finance Association, vol. 47(3), pages 1159-80, July.
- Roger H. Gordon, 1990. "Can Capital Income Taxes Survive in Open Economies?," NBER Working Papers 3416, National Bureau of Economic Research, Inc.
- Bond, E.W., 1988.
"Optimal Tax And Tariff Policies With Tax Credits,"
5-88-1, Pennsylvania State - Department of Economics.
- Mintz, J. & Tulkens, H., 1990. "Strategic use of tax rates and credits in a model of international corporate income tax competition," CORE Discussion Papers 1990073, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Brander, James A. & Spencer, Barbara J., 1985.
"Export subsidies and international market share rivalry,"
Journal of International Economics,
Elsevier, vol. 18(1-2), pages 83-100, February.
- James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
- Brander, James A. & Spencer, Barbara J., 1987. "Foreign direct investment with unemployment and endogenous taxes and tariffs," Journal of International Economics, Elsevier, vol. 22(3-4), pages 257-279, May.
- James Levinsohn & Joel Slemrod, 1990.
"Taxes, Tariffs, and The Global Corporation,"
NBER Working Papers
3500, National Bureau of Economic Research, Inc.
- Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
- Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral 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.