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Corporate Income Taxation of Multinationals in a General Equilibrium Model

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Author Info
Thomas Eichner ()
Marco Runkel ()

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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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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2320.

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

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

Find related papers by JEL classification:
H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

References listed on IDEAS
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  1. 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.
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. Wilson, John D., 1985. "Optimal property taxation in the presence of interregional capital mobility," Journal of Urban Economics, Elsevier, vol. 18(1), pages 73-89, July. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Ruediger Pethig & Andreas Wagener, 2003. "Profit Tax Competition and Formula Apportionment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Kant, Chander, 1988. "Endogenous transfer pricing and the effects of uncertain regulation," Journal of International Economics, Elsevier, vol. 24(1-2), pages 147-157, February. [Downloadable!] (restricted)
  7. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, vol. 88(6), pages 1149-1168, June. [Downloadable!] (restricted)
    Other versions:
  8. S¯ren Bo Nielsen & Pascalis Raimondos-M¯ller & Guttorm Schjelderup, 2003. "Formula Apportionment and Transfer Pricing under Oligopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 419-437, 04. [Downloadable!] (restricted)
    Other versions:
  9. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November. [Downloadable!] (restricted)
  10. Thomas Eichner & Marco Runkel, 2008. "Why the European Union Should Adopt Formula Apportionment with a Sales Factor," Scandinavian Journal of Economics, Blackwell Publishing, vol. 110(3), pages 567-589, 09. [Downloadable!] (restricted)
  11. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May. [Downloadable!] (restricted)
  12. Pinto, Santiago M., 2007. "Corporate profit tax, capital mobility, and formula apportionment," Journal of Urban Economics, Elsevier, vol. 62(1), pages 76-102, July. [Downloadable!] (restricted)
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