Haufler, Andreas () (Department of Economics, University of Munich) Klemm, Alexander () (Fiscal Affairs Dept., International Monetary Fund (IMF)) Schjelderup, Guttorm () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
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Increased activity of multinational firms exposes national corporate tax bases to cross-country profit shifting, but also leads to rising profitability of the corporate sector. We incorporate these two effects of economic integration into a simple political economy model where the median voter decides on a redistributive income tax rate. In this setting economic integration may raise or lower the equilibrium tax rate, and it is more likely to raise the tax rate of a low-tax country. The implications of the model are consistent with the empirical observations that effective corporate tax rates have not fallen in all OECD countries, and that corporate tax revenues have generally risen.
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Paper provided by Department of Finance and Management Science, Norwegian School of Economics and Business Administration in its series Discussion Papers with number
2008/4.
Length: 14 pages Date of creation: 12 Mar 2008 Date of revision: Handle: RePEc:hhs:nhhfms:2008_004
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Find related papers by JEL classification: F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
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