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Strategic Tax Competition; Implications of National Ownership

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Author Info
Olsen, Trond E.
Osmundsen, Petter

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Abstract

Two jurisdictions compete to capture the rents of a large multinational enterprise (MNE) which invests locally and which is partly owned by local investors. The MNE contributes to local welfare by tax payments and dividends, and it has private information about the efficiency of the operations in the two localisations. It is shown that the distortions in the MNE's real investment portfolio are determined by a trade-off between fiscal externalities and equity externalities, and that investments in the case of strategic tax competition may be lower than in the co-operative case. Ownership matters, and we show how the firm may reduce its overall tax payments by influencing the distribution of owner shares between investors in the two countries.

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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. 281.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_281

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Related research
Keywords: Tax competition; mobility; common agency;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  2. Bond, Eric W. & Gresik, Thomas A., 1996. "Regulation of multinational firms with two active governments: A common agency approach," Journal of Public Economics, Elsevier, vol. 59(1), pages 33-53, January. [Downloadable!] (restricted)
  3. Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February. [Downloadable!] (restricted)
    Other versions:
  4. Olsen, T.E. & Osmundsen, P., 1999. "Common Agency with Outside Options; the Case of International Taxation of an MNE," Norway; Department of Economics, University of Bergen 1999, Department of Economics, University of Bergen.
  5. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1.
  6. Baron, David P., 1989. "Design of regulatory mechanisms and institutions," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 24, pages 1347-1447 Elsevier. [Downloadable!] (restricted)
  7. Claudio Mezzetti, 1997. "Common Agency with Horizontally Differentiated Principals," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 323-345, Summer. [Downloadable!] (restricted)
  8. Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer, vol. 2(1), pages 85-106, February. [Downloadable!] (restricted)
  9. Trond E. Olsen, 1993. "Regulation of Multiagent Research and Development," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 529-541, Winter. [Downloadable!] (restricted)
  10. Martimort, David, 1996. "The multiprincipal nature of government," European Economic Review, Elsevier, vol. 40(3-5), pages 673-685, April. [Downloadable!] (restricted)
  11. Martimort, David, 1992. "Multi-Principaux avec Anti-Sélection," IDEI Working Papers 14, Institut d'Économie Industrielle (IDEI), Toulouse.
  12. Konrad, Kai A. & Erik Lommerud, Kjell, 2001. "Foreign direct investment, intra-firm trade and ownership structure," European Economic Review, Elsevier, vol. 45(3), pages 475-494, March. [Downloadable!] (restricted)
    Other versions:
  13. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-41, June. [Downloadable!] (restricted)
    Other versions:
  14. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December. [Downloadable!] (restricted)
  15. Michael Peters, 1999. "Common Agency and the Revelation Principle," Working Papers peters-99-01, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  16. Schroyen, Fred, 1997. "Pareto efficient income taxation under costly monitoring," Journal of Public Economics, Elsevier, vol. 65(3), pages 343-366, September. [Downloadable!] (restricted)
  17. Osmundsen, P. & Hagen, K. P. & Schjelderup, G., 1998. "Internationally mobile firms and tax policy1," Journal of International Economics, Elsevier, vol. 45(1), pages 97-113, June. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Diaw, K.M. & Pouyet J.,, 2004. "Competition, incomplete discrimination and versioning," Discussion Paper 69, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Olsen, Trond E. & Osmundsen, Petter, 2000. "International Competition for R&D Investments," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 2004. "Trade and Multinationals: The Effect of Economic Integration on Taxation and Tax Revenue," CEPR Discussion Papers 4312, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Huizinga, Harry & Nicodeme, Gaetan, 2003. "Foreign Ownership and Corporate Income Taxation: An Empirical Evaluation," CEPR Discussion Papers 3952, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Lommerud, Kjell Erik & Olsen, Trond E. & Straume, Odd Rune, 2005. "Access regulation and cross-border mergers: Is international coordination beneficial?," Discussion Papers 2005/8, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
  6. Clemens Fuest & Thomas Hemmelgarn, 2003. "Corporate Tax Policy, Foreign Firm Ownership and Thin Capitalization," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. Osmundsen, Petter, 2009. "Time consistency in Petroleum Taxation - The case of Norway," UiS Working Papers in Economics and Finance 2009/18, University of Stavanger. [Downloadable!]
  8. Essi Eerola, 2004. "Environmental Tax Competition in the Presence of Multinational Firms," Asia-Pacific Financial Markets, Springer, vol. 11(3), pages 283-298, May. [Downloadable!] (restricted)
    Other versions:
  9. Frank Asche & Petter Osmundsen & Ragnar Tveteras, 2001. "Energy Taxes and Natural Gas Demand in EU-Countries," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  10. Diaw, K.M. & Pouyet, J., 2004. "The dilemma of tax competition : how (not) to attract (inefficient) firms?," Discussion Paper 68, Tilburg University, Center for Economic Research. [Downloadable!]
  11. Xiaodong Wu, 2004. "Pollution Havens and the Regulation of Multinationals with Asymmetric Information," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(2). [Downloadable!]
  12. Roger H. Gordon & James R. Hines Jr., 2002. "International Taxation," NBER Working Papers 8854, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier. [Downloadable!] (restricted)
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