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Corporate income taxation of multinationals and unemployment

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  • Eichner, Thomas
  • Runkel, Marco

Abstract

Within a two-country model with involuntary unemployment, this paper investigates corporate income taxation under separate accounting versus formula apportionment. In contrast to separate accounting, under formula apportionment the corporate tax policy causes a fiscal externality that results from unemployment. This externality is the highest when the apportionment formula contains the payroll factor only. It is minimized for the pure sales (property) formula, if the substitution elasticity is low (high). The unemployment externality tends to compensate other externalities such that tax rates become inefficiently low. The deviation from the efficient tax policy is minimized when the apportionment formula contains the sales factor only.

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  • Eichner, Thomas & Runkel, Marco, 2009. "Corporate income taxation of multinationals and unemployment," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 610-620, September.
    • Handle: RePEc:eee:regeco:v:39:y:2009:i:5:p:610-620
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    Cited by:

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    3. Caterina Liesegang & Marco Runkel, 2009. "Corporate Income Taxation of Multinationals and Fiscal Equalization," CESifo Working Paper Series 2747, CESifo.
    4. Becker, Johannes & Runkel, Marco, 2013. "Corporate tax regime and international allocation of ownership," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 8-15.

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