This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Why is There Corporate Taxation in a Small Open Economy? The Role of Transfer Pricing and Income Shifting

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Roger H. Gordon
Jeffrey K. Mackie-Mason

Additional information is available for the following registered author(s):

Abstract

Several recent papers argue that corporate income taxes should not be used by small, open economies. With capital mobility, the burden of the tax falls on fixed factors (e.g., labor), and the tax system is more efficient if labor is taxed directly. However, corporate taxes not only exist but rates are roughly comparable with the top personal tax rates. Past models also forecast that multinationals should not invest in countries with low corporate tax rates, since the surtax they owe when profits are repatriated puts them at a competitive disadvantage. Yet such foreign direct investment is substantial. We suggest that the resolution of these puzzles may be found in the role of income shifting, both domestic (between the personal and corporate tax bases) and cross-border (through transfer pricing). Countries need nondistortionary corporate taxes as a backstop to labor taxes to discourage individuals from converting their labor income into otherwise untaxed corporate income. The optimal corporate and labor tax rates are equal. We also explore some other effects that domestic and cross-border income shifting have on optimal tax design.

Download Info
To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Publisher Info
Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 93-06.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation:
Date of revision:
Handle: RePEc:kud:epruwp:93-06

Contact details of provider:
Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark
Phone: (+45) 3532 4411
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk/epru/
More information through EDIRC

Order Information:
Email:

For technical questions regarding this item, or to correct its listing, contact: (Henriette Aabo Hansen).

Related research
Keywords:

Other versions of this item:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gordon, Roger H, 1992. " Can Capital Income Taxes Survive in Open Economies?," Journal of Finance, American Finance Association, vol. 47(3), pages 1159-80, July. [Downloadable!] (restricted)
    Other versions:
  2. Assaf Razin & Efraim Sadka, 1991. "International Tax Competition and Gains from Tax Harmonization," NBER Working Papers 3152, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September. [Downloadable!] (restricted)
  4. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1992. "Tax Distortions to the Choice of Organizational Form," NBER Working Papers 4227, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Martin Feldstein & Charles Horioka, 1980. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Roger H. Gordon & Joel Slemrod, 1988. "Do We Collect Any Revenue from Taxing Capital Income?," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 89-130 National Bureau of Economic Research, Inc. [Downloadable!]
  7. Gravelle, Jane G & Kotlikoff, Laurence J, 1989. "The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Good," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 749-80, August. [Downloadable!] (restricted)
    Other versions:
  8. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-40, September. [Downloadable!] (restricted)
    Other versions:
  9. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169. [Downloadable!] (restricted)
    Other versions:
  10. James R. Hines, Jr. & R. Glenn Hubbard, 1990. "Coming Home to America: Dividend Repatriations by U.S. Multinationals," NBER Working Papers 2931, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Jeffrey K. MacKie-Mason & Roger H. Gordon, 1991. "How Much Do Taxes Discourage Incorporation," NBER Working Papers 3781, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-91, December. [Downloadable!] (restricted)
  13. Hines, J.R. & Rice, E.M., 1990. "Fiscal Paradise: Foreign Tax Havens And American Business," Papers 56, Princeton, Woodrow Wilson School - Discussion Paper.
    Other versions:
  14. Roger H. Gordon & A. Lans Bovenberg, 1994. "Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," NBER Working Papers 4796, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Harry Grubert & Joel Slemrod, 1994. "The Effect of Taxes on Investment and Income Shifting to Puerto Rico," NBER Working Papers 4869, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Stöwhase, Sven, 2004. "Asymmetric Capital Tax Competition with Profit Shifting," Discussion Papers in Economics 454, University of Munich, Department of Economics. [Downloadable!]
    Other versions:
  3. Harry Grubert, 2000. "Tax Planning by Companies and Tax Competition by Governments: Is There Evidence of Changes in Behavior?," NBER Chapters, in: International Taxation and Multinational Activity, pages 113-142 National Bureau of Economic Research, Inc. [Downloadable!]
  4. Vidar Christiansen & Matti Tuomala, 2008. "On taxing capital income with income shifting," International Tax and Public Finance, Springer, vol. 15(4), pages 527-545, August. [Downloadable!] (restricted)
  5. Gordon H. HANSON, 2001. "Should Countries Promote Foreign Direct Investment?," G-24 Discussion Papers 9, United Nations Conference on Trade and Development. [Downloadable!]
  6. Joel Slemrod & John D. Wilson, 2006. "Tax Competition With Parasitic Tax Havens," NBER Working Papers 12225, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Roger H. Gordon & James R. Hines Jr., 2002. "International Taxation," NBER Working Papers 8854, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier. [Downloadable!] (restricted)
Statistics
Access and download statistics

Did you know? Citation analysis on IDEAS includes online papers that are freely accessible and whose text could be automatically analyzed, currently about 210000 papers.

This page was last updated on 2009-11-7.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.