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Multinationals, tax competition, and outside options

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  • Olsen, Trond

    ()
    (NHH, Norwegian School of Economics and Business Administration)

  • Osmundsen, Petter

    ()
    (University of Stavanger)

Abstract

We analyze 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.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by University of Stavanger in its series UiS Working Papers in Economics and Finance with number 2009/28.

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Length: 28 pages
Date of creation: 01 Aug 2009
Date of revision:
Handle: RePEc:hhs:stavef:2009_028

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Postal: University of Stavanger, NO-4036 Stavanger, Norway
Web page: http://www.uis.no/research/economics_and_finance
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Keywords: Tax competition; mobility; common agency; countervailing incentives;

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  1. Olsen, Trond E. & Osmundsen, Petter, 2003. "Spillovers and international competition for investments," Journal of International Economics, Elsevier, vol. 59(1), pages 211-238, January.
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Cited by:
  1. Denvil Duncan & Ed Gerrish, 2014. "Personal income tax mimicry: evidence from international panel data," International Tax and Public Finance, Springer, vol. 21(1), pages 119-152, February.

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