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Abstract

This paper contributes to the discussion on Separate Accounting versus Formula Apportionment in the corporate income taxation of multinational enterprises. The innovation is that we consider a general equilibrium tax competition model with an endogenous interest rate. In contrast to previous studies, we show that tax rates are inefficiently low not only under Separate Accounting, but also under Formula Apportionment. Moreover, we identify a wide range of empirically relevant cases where Formula Apportionment is superior to Separate Accounting, independent of the magnitude of the concealment cost of profit shifting. The reason for the change in results is that one country's tax rate affects other countries additionally via changes in the interest rate.

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File URL: http://www.sciencedirect.com/science/article/B6V76-51SPRWJ-2/2/9ee388463dd3369c0b80df4dcbae4f77
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Bibliographic Info

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

Volume (Year): 95 (2011)
Issue (Month): 7-8 (August)
Pages: 723-733

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:7-8:p:723-733

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Corporate income tax Separate Accounting Formula Apportionment;

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Find related papers by JEL classification:

• H7 - Public Economics - - State and Local Government; Intergovernmental Relations
• H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

References

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Citations

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Cited by:

1. Matthias Wrede, 2009. "Multinational Capital Structure and Tax Competition," MAGKS Papers on Economics 200934, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
   
   • Matthias Wrede, 2010. "Multinational Capital Structure and Tax Competition," CESifo Working Paper Series 3041, CESifo Group Munich.
2. Ronald B Davies, 2012. "CCCTB 4 EU? SA vs. FA w/ FTA," Working Papers 201224, School Of Economics, University College Dublin.
3. Kazuki Onji, 2013. "Who participates in corporate income tax consolidation? Evidence from Japan," AJRC Working Papers 1303, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
4. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2010. "Company taxation and tax spillovers: Separate accounting versus formula apportionment," European Economic Review, Elsevier, vol. 54(1), pages 121-132, January.

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