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Corporate Income Taxation of Multinationals and Unemployment

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  • Thomas Eichner
  • Marco Runkel

Abstract

Within a two-country model with involuntary unemployment, this paper investigates corporate income taxation under separate accounting versus formula apportionment. In contrast to separate accounting, under formula apportionment the corporate tax policy causes a fiscal externality which goes back to unemployment. This unemployment externality is the lowest when the apportionment formula does not contain a payroll factor. It tends to compensate other externalities such that tax rates become inefficiently low. In an empirical calibration, we show that the transition from separate accounting to formula apportionment improves welfare and reduces unemployment. The welfare increase is the strongest under a pure sales formula.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1868.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1868

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Keywords: separate accounting; formula apportionment; unemployment;

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References

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  1. Harry Huizinga & Gaetan Nicodeme, 2003. "Foreign Ownership and Corporate Income Taxation: An Empirical Evaluation," Public Economics 0310005, EconWPA.
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Citations

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Cited by:
  1. Johannes Becker & Marco Runkel, 2010. "Corporate tax regime and international allocation of ownership," FEMM Working Papers 100014, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  2. Nadine Riedel, 2011. "Taxing multinationals under union wage bargaining," Working Papers 1106, Oxford University Centre for Business Taxation.
  3. Caterina Liesegang & Marco Runkel, 2009. "Corporate Income Taxation of Multinationals and Fiscal Equalization," FEMM Working Papers 09028, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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