This paper analyzes a model of corporate tax competition with repeated interaction and with the strategic use of profit shifting within multinationals. We show that international tax coordination is more likely to prevail if the degree of asymmetry in terms of productivity differences between countries is smaller, or if concealment costs of profit shifting are larger when the tax authorities adopt grim-trigger strategies. Allowing for renegotiation in the tax harmonization process generally requires more patient tax authorities to support tax harmonization as a subgame perfect equilibrium. We find somewhat paradoxical situations where higher costs of profit shifting make international tax arrangements less sustainable under weakly-renegotiation-proof strategies.
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Paper provided by Graduate School of Economics and Business Administration, Hokkaido University in its series Discussion paper series. A with number
214.
Find related papers by JEL classification: H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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