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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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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 39 (2009)
Issue (Month): 5 (September)
Pages: 610-620

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Handle: RePEc:eee:regeco:v:39:y:2009:i:5:p:610-620

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Keywords: Separate accounting Formula apportionment Unemployment;

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Cited by:
  1. Johannes Becker & Marco Runkel, 2010. "Corporate tax regime and international allocation of ownership," Working Papers 1010, Oxford University Centre for Business Taxation.
  2. Nadine Riedel, 2011. "Taxing multi-nationals under union wage bargaining," International Tax and Public Finance, Springer, vol. 18(4), pages 399-421, August.
  3. Caterina Liesegang & Marco Runkel, 2009. "Corporate Income Taxation of Multinationals and Fiscal Equalization," CESifo Working Paper Series 2747, CESifo Group Munich.

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