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Corporate Income Taxation of Multinationals and Fiscal Equalization

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  • Caterina Liesegang
  • Marco Runkel

Abstract

This paper investigates the effect of fiscal equalization on the efficiency properties of corporate income tax rates chosen by symmetric countries in a Nash tax competition game under the taxation principles of Separate Accounting and Formula Apportionment. Fiscal equalization ensures efficiency if the marginal transfer just reflects the fiscal and pecuniary externalities of tax rates. In contrast to previous studies, tax base equalization (Representative Tax System) does not satisfy this condition, but combining tax revenue and private income equalization does, regardless of which taxation principle is implemented. Under Formula Apportionment, tax base equalization is superior to tax revenue equalization if the wage income externality is sufficiently large.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-08/cesifo1_wp2747.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2747.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2747

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Keywords: separate accounting; formula apportionment; fiscal equalization;

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References

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Cited by:
  1. Chen, Yu-Fu & Funke, Michael, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," SIRE Discussion Papers 2009-31, Scottish Institute for Research in Economics (SIRE).

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