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Tax Competition with Formula Apportionment: The Interaction between Tax Base and Sharing Mechanism

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Author Info

  • Martin Kolmar
  • Andreas Wagener

Abstract

The EU Commission is advocating a common consolidated tax base for the corporate income tax, accompanied by a revenue sharing mechanism based on formula apportionment. We analyse tax competition in such a regime, focussing on the interaction between the definition of the tax base and the apportionment method. Tax competition leads to suboptimally low tax rates if and only if the investment elasticity of the tax base is lower than the investment elasticity of the apportionment factor. For any apportionment method a change in the definition of the tax base can turn a race-to-the-bottom in tax competition into a race-over-the-top.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-09/cesifo1_wp2097.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2097.

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Date of creation: 2007
Date of revision:
Handle: RePEc:ces:ceswps:_2097

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Related research

Keywords: tax competition; formular apportionment; corporate income tax;

References

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  1. 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.
  2. Dietmar Wellisch, 2004. "Taxation under Formula Apportionment - Tax Competition, Tax Incidence, and the Choice of Apportionment Factors," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(1), pages 24-, April.
  3. Rüdiger Pethig & Andreas Wagener, 2003. "Profit Tax Competition and Formula Apportionment," CESifo Working Paper Series 1011, CESifo Group Munich.
  4. European Commission, 2001. "Company Taxation in the Internal Market," Taxation Studies 0005, Directorate General Taxation and Customs Union, European Commission.
  5. Jack Mintz, 2004. "Corporate Tax Harmonization in Europe: It's All About Compliance," International Tax and Public Finance, Springer, vol. 11(2), pages 221-234, 03.
  6. Anand, Bharat N. & Sansing, Richard, 2000. "The Weighting Game: Formula Apportionment as an Instrument of Public Policy," National Tax Journal, National Tax Association, vol. 53(n. 2), pages 183-200, June.
  7. Peter Sørensen, 2004. "Company Tax Reform in the European Union," International Tax and Public Finance, Springer, vol. 11(1), pages 91-115, January.
  8. Michael Devereux, 2004. "Debating Proposed Reforms of the Taxation of Corporate Income in the European Union," International Tax and Public Finance, Springer, vol. 11(1), pages 71-89, January.
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Cited by:
  1. Matthias Wrede, 2010. "Multinational Capital Structure and Tax Competition," CESifo Working Paper Series 3041, CESifo Group Munich.
  2. Matthias Wrede, 2009. "Asymmetric Tax Competition with Formula Apportionment," MAGKS Papers on Economics 200943, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Pedro Gomes & Francois Pouget, 2008. "Corporate Tax Competition and the Decline of Public Investment," CESifo Working Paper Series 2384, CESifo Group Munich.

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