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Tax Competition when Firms Choose their Organizational Form: Should Tax Loopholes for Multinationals be Closed?

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  • Sam Bucovetsky
  • Andreas Haufler

Abstract

We analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings. Governments are able to commit to long-run tax discrimination policies before firms' decisions are made and before statutory capital tax rates are chosen non-cooperatively. Whether a coordinated reduction in the tax preferences granted to mobile firms is beneficial or harmful for the competing countries depends critically on the elasticity with which the firms' organizational structure responds to tax discrimination incentives. The model can be applied to policy initiatives that aim at a ban on preferential tax regimes and at reducing the profit shifting opportunities for multinational firms.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-12/cesifo1_wp1625.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1625.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1625

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Keywords: tax competition; multinational firms; preferential treatment;

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