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Taxing multi-nationals under union wage bargaining

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  • Nadine Riedel

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Abstract

This paper investigates corporate taxation under separate accounting (SA) and formula apportionment (FA) in a model with union wage bargaining and multinational firms. Under SA, we find that increases in the corporate tax rate raise the wage level of domestic workers, while they lower the remuneration of foreign workers. The main insight emerging from a tax competition game is that the endogenous wage level gives rise to an ambiguous fiscal externality, which may dampen the race-to-the-bottom in corporate tax rates. A switch to a tax system with FA principles reverses the impact of corporate taxes on negotiated wages. While increases in the corporate tax rate reduce domestic wages, they raise the wage level of foreign workers. In a tax competition game, the endogenous wage level gives rise to a positive fiscal externality that enforces the race-to-the-bottom in corporate tax rates.

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Bibliographic Info

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

Volume (Year): 18 (2011)
Issue (Month): 4 (August)
Pages: 399-421

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Handle: RePEc:kap:itaxpf:v:18:y:2011:i:4:p:399-421

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

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Keywords: Corporate taxation; Multi-national firm; Union wage bargaining; H3; H7; J5;

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Citations

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Cited by:
  1. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2014. "The Own-Wage Elasticity of Labor Demand: A Meta-Regression Analysis," IZA Discussion Papers 7958, Institute for the Study of Labor (IZA).
  2. Arulampalam, Wiji & Devereux, Michael P. & Maffini, Giorgia, 2012. "The direct incidence of corporate income tax on wages," European Economic Review, Elsevier, vol. 56(6), pages 1038-1054.
  3. Sebastian Krautheim & Tim Schmidt-Eisenlohr, 2012. "Wages and International Tax Competition," CESifo Working Paper Series 3867, CESifo Group Munich.

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