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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 income taxes in a common market where tax revenues are allocated according to an apportionment formula. Generally, tax competition is sharper (i.e., equilibrium tax rates are lower) the more tax-elastic is the apportionment formula. This depends on the properties of production technologies. In particular: (i) With fixed labour input, 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 sales-share formula. Factor elasticities determine whether payroll- or property-share apportionment generates sharper tax competition.

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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. Søren Bo Nielsen & Pascalis Raimondos-Møller & Guttorm Schjelderup, . "Tax Spillovers under Separate Accounting and Formula Apportionment," EPRU Working Paper Series 01-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
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  4. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjederup, Guttorm, 2000. "Formula Apportionment And Transfer Pricing Under Oligopolistic Competition," Working Papers 18-2000, Copenhagen Business School, Department of Economics.
  5. 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.
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  12. 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.
  13. Jack Mintz, 2002. "European company tax reform : prospects for the future ; company taxation and the internal market," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 3(1), pages 3-9, 04.
  14. 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.
  15. 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.
  16. 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.
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