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Taxing multinationals under union wage bargaining

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  • Nadine Riedel

    ()
    (Centre for Business Taxation, University of Oxford)

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

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1106.

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Date of creation: 2011
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Handle: RePEc:btx:wpaper:1106

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Keywords: corporate taxation; multinational firm; union wage bargaining;

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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," ZEW Discussion Papers 14-016, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Wiji Arulampalam & Michael P Devereux & Giorgia Maffini, 2007. "The Direct Incidence of Corporate Income Tax on Wages," Working Papers 0707, Oxford University Centre for Business Taxation.
  3. Sebastian Krautheim & Tim Schmidt-Eisenlohr, 2011. "Wages and International Tax Competition," Working Papers 1123, Oxford University Centre for Business Taxation.

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