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Corporate income taxation of multinationals and unemployment

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Author Info
Eichner, Thomas
Runkel, Marco

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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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Publisher 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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  19. Ogawa, Hikaru & Sato, Yasuhiro & Tamai, Toshiki, 2006. "A note on unemployment and capital tax competition," Journal of Urban Economics, Elsevier, vol. 60(2), pages 350-356, September. [Downloadable!] (restricted)
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