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Abstract

We analyse tax competition when a multinational firm has invested in two countries but also has an outside option, e.g., towards a third country. An interesting finding is that more attractive outside options for firms may constitute a win-win situation; the firm as well as its present host countries may gain when this occurs. The reason that it benefits the host countries is that an enhanced outside option reduces the inefficiencies of tax competition. An implication of the result is that better outside options for multinational firms may reduce the gains from host countries’ policy coordination and thus reduce those countries’incentives to coordinate their policies. Also, with a development where outside options become more accessible, the perceived costs of tax competition, e.g., in terms of underprovision of public goods, may be overestimated. Our findings may also have implications for international negotiations, since it provides an argument for mutual reduction of entry barriers, as this may improve outside options.

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Bibliographic Info

Paper provided by Department of Finance and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2010/13.

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Length: 27 pages
Date of creation: 30 Sep 2010
Date of revision:
Handle: RePEc:hhs:nhhfms:2010_013

Contact details of provider:
Postal: NHH, Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Email:
Web page: http://www.nhh.no/for/
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Related research

Keywords: Tax competition; mobility; common agency; countervailing incentives;

Other versions of this item:

Find related papers by JEL classification:

• D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
• H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
• L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

This paper has been announced in the following NEP Reports:

• NEP-ACC-2010-10-16 (Accounting & Auditing)
• NEP-ALL-2010-10-16 (All new papers)
• NEP-PBE-2010-10-16 (Public Economics)

References

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Cited by:

1. Florence TOUYA, 2009. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working Papers 9, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Nov 2009.

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