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Strategic Taxation of the Multinational Enterprise: Profit-Shifting and Globally-Joint Inputs

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Author Info
Denise Eby Konan () (Department of Economics, University of Hawaii at Manoa)

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Abstract

This paper models strategic taxation policy of home and host governments when a multinational enterprise sets transfer prices on globally-joint inputs such as research and development. Tax credit and deduction allowances, as well as no taxation of foreign-earned profits, result in identical optimal transfer price solutions and national income effects in both countries. An equilibrium home tax solution is to tax foreign-earned profits at a higher rate than domestically earned profits. The multinational responds by shifting profits abroad through transfer pricing mechanisms.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/88-98/WP_95-2.pdf
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Publisher Info
Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 199502.

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Length: 17 pages
Date of creation: 1995
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Handle: RePEc:hai:wpaper:199502

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Related research
Keywords: transfer pricing; strategic taxation; multinational enterprise;

Find related papers by JEL classification:
F2 - International Economics - - International Factor Movements and International Business
H2 - Public Economics - - Taxation, Subsidies, and Revenue
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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This page was last updated on 2009-12-28.

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