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Profit tax competition and formula apportionment

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  • Rüdiger Pethig

    ()

  • Andreas Wagener

    ()

Abstract

We analyse tax competition with corporate profit taxes in a common market where tax revenues are allocated according to an apportionment formula. As a general rule, tax competition is sharper the higher is the tax elasticity of the apportionment formula which, in turn, depends on the properties of production technologies. In particular: (i) If labour input is fixed, tax competition is sharpest if apportionment is based on property shares, followed by the sales and payroll shares. (ii) If capital and labour are endogenous and technologies are Cobb-Douglas, tax competition under the property- and the payroll-share rule is sharper than under the output-share formula. Whether payroll- or property-share apportionment generates sharper tax competition, depends on factor elasticities.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s10797-006-9017-5
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 14 (2007)
Issue (Month): 6 (December)
Pages: 631-655

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Handle: RePEc:kap:itaxpf:v:14:y:2007:i:6:p:631-655

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Tax competition; Formula apportionment;

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References

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  1. Joann Weiner, 2002. "Formulary apportionment and the future of company taxation in the European Union : company taxation and the internal market," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 3(1), pages 10-20, 04.
  2. Bartelsman, Eric J & Beetsma, Roel, 2000. "Why Pay More? Corporate Tax Avoidance Through Transfer Pricing in OECD Countries," CEPR Discussion Papers 2543, C.E.P.R. Discussion Papers.
  3. 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.
  4. Søren Bo Nielsen & Pascalis Raimondos-Møller & Guttorm Schjelderup, 2001. "Formula Apportionment and Transfer Pricing under Oligopolistic Competition," CESifo Working Paper Series 491, CESifo Group Munich.
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  8. Joann Weiner, 2002. "Formula Apportionment in the European Union: A Dream Come True or the EU’s Worst Nightmare?," CESifo Working Paper Series 667, CESifo Group Munich.
  9. Nielsen, Soren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2001. "Tax Spillovers under Separate accounting and Formula Apportionment," CEPR Discussion Papers 2831, C.E.P.R. Discussion Papers.
  10. Laussel, Didier & Le Breton, Michel, 1998. "Existence of Nash equilibria in fiscal competition models," Regional Science and Urban Economics, Elsevier, vol. 28(3), pages 283-296, May.
  11. Austan Goolsbee & Edward L Maydew, 1998. "Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment," NBER Working Papers 6614, National Bureau of Economic Research, Inc.
  12. Bayindir-Upmann, Thorsten & Ziad, Abderrahmanne, 2005. "Existence of equilibria in a basic tax-competition model," Regional Science and Urban Economics, Elsevier, vol. 35(1), pages 1-22, January.
  13. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November.
  14. European Commission, 2001. "Company Taxation in the Internal Market," Taxation Studies 0005, Directorate General Taxation and Customs Union, European Commission.
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