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Corporate Income Taxation of Multinationals in a General Equilibrium Model

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  • Thomas Eichner
  • Marco Runkel

Abstract

This paper contributes to the discussion on Separate Accounting versus Formula Apportionment in the corporate income taxation of multinational enterprises (MNEs). The innovation of the analysis is that we consider a general equilibrium tax competition model with an endogenously determined world interest rate. Under the principle of Separate Accounting, it turns out that corporate tax rates may be inefficiently low or high, while under Formula Apportionment corporate tax rates are always inefficiently low. These results are true independent of whether the number of countries is small or large. They reverse the insights obtained by previous studies under the assumption of an exogenously given world interest rate.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-06/cesifo1_wp2320.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2320.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2320

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Keywords: corporate income tax; Separate Accounting; Formula Apportionment;

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References

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  1. Jack M. Mintz & Michael Smart, 2001. "Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada," International Tax Program Papers 0402, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto, revised Apr 2003.
  2. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS) 642, University of Warwick, Department of Economics.
  3. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjederup, Guttorm, 2000. "Formula Apportionment And Transfer Pricing Under Oligopolistic Competition," Working Papers 18-2000, Copenhagen Business School, Department of Economics.
  4. Harry Huizinga & Søren Bo Nielsen, . "The Coordination of Capital Income and Profit Taxation with Cross-Ownership of Firms," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 96-17, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  5. B. Douglas Bernheim, 1999. "Taxation and Saving," Working Papers, Stanford University, Department of Economics 99007, Stanford University, Department of Economics.
  6. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  7. Wolfgang Eggert & Guttorm Schjelderup, 2003. "Symmetric Tax Competition under Formula Apportionment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 439-446, 04.
  8. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-25, April.
  9. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
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  12. de CROMBRUGGHE, Alain & TULKENS, Henry, . "On Pareto improving commodity tax changes under fiscal competition," CORE Discussion Papers RP -895, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  16. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
  17. Thomas Eichner & Marco Runkel, 2008. "Why the European Union Should Adopt Formula Apportionment with a Sales Factor," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 567-589, 09.
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  20. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, Econometric Society, vol. 54(6), pages 1357-73, November.
  21. Dietmar Wellisch, 2004. "Taxation under Formula Apportionment - Tax Competition, Tax Incidence, and the Choice of Apportionment Factors," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 60(1), pages 24-, April.
  22. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  23. Riedel, Nadine & Runkel, Marco, 2007. "Company tax reform with a water's edge," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1533-1554, August.
  24. 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.
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Citations

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Cited by:
  1. Becker, Johannes & Runkel, Marco, 2013. "Corporate tax regime and international allocation of ownership," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 8-15.
  2. Matthias Wrede, 2010. "Multinational Capital Structure and Tax Competition," CESifo Working Paper Series 3041, CESifo Group Munich.
  3. Ronald B Davies, 2013. "Tariff-induced Transfer Pricing and the CCCTB," Working Papers, School Of Economics, University College Dublin 201314, School Of Economics, University College Dublin.
  4. Matthias Wrede, 2009. "Asymmetric Tax Competition with Formula Apportionment," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 200943, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  5. Kazuki Onji, 2013. "Who participates in corporate income tax consolidation? Evidence from Japan," AJRC Working Papers, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University 03, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  6. 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.
  7. Ronald B Davies, 2012. "CCCTB 4 EU? SA vs. FA w/ FTA," Working Papers, School Of Economics, University College Dublin 201224, School Of Economics, University College Dublin.
  8. repec:csg:ajrcwp:1303 is not listed on IDEAS

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