Multinationals, tax competition and outside options
AbstractWe analyze tax competition when a multinational firm has invested in two countries but also has an outside option, e.g., towards a third country. An interesting finding is that more attractive outside options for firms may constitute a win–win situation; the firm as well as its present host countries may gain when this occurs. The reason that it benefits the host countries is that an enhanced outside option reduces the inefficiencies of tax competition. An implication of the result is that better outside options for multinational firms may reduce the gains from host countries' policy coordination and thus reduce those countries' incentives to coordinate their policies. Also, with a development where outside options become more accessible, the perceived costs of tax competition, e.g., in terms of underprovision of public goods, may be overestimated. Our findings may also have implications for international negotiations, since it provides an argument for mutual reduction of entry barriers, as this may improve outside options.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 95 (2011)
Issue (Month): 11 ()
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Web page: http://www.elsevier.com/locate/inca/505578
Tax competition; Mobility; Common agency; Countervailing incentives;
Other versions of this item:
- Olsen, Trond & Osmundsen, Petter, 2009. "Multinationals, tax competition, and outside options," UiS Working Papers in Economics and Finance 2009/28, University of Stavanger.
- Olsen, Trond E. & Osmundsen, Petter, 2010. "Multinationals, tax competition and outside options," Discussion Papers 2010/13, Department of Business and Management Science, Norwegian School of Economics.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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