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Corporate income taxation of multinationals in a general equilibrium model

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  • Eichner, Thomas
  • Runkel, Marco

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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Bibliographic Info

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

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

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

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

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Keywords: Corporate income tax; Separate Accounting; Formula Apportionment;

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References

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Citations

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Cited by:
  1. Johannes Becker & Marco Runkel, 2010. "Corporate tax regime and international allocation of ownership," FEMM Working Papers 100014, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  2. Matthias Wrede, 2014. "Asymmetric tax competition with formula apportionment," Letters in Spatial and Resource Sciences, Springer, vol. 7(1), pages 47-60, March.
  3. Ronald B Davies, 2012. "CCCTB 4 EU? SA vs. FA w/ FTA," Working Papers 201224, School Of Economics, University College Dublin.
  4. 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).
  5. repec:csg:ajrcwp:1303 is not listed on IDEAS
  6. Kazuki Onji, 2013. "Who participates in corporate income tax consolidation? Evidence from Japan," AJRC Working Papers 03, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  7. Ronald B Davies, 2013. "Tariff-induced Transfer Pricing and the CCCTB," Working Papers 201314, School Of Economics, University College Dublin.
  8. 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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