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Taxing Multinationals

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  • Michael P. Devereux
  • R. Glenn Hubbard

Abstract

This paper analyzes the effects of tax policy on the strategic choices of a domestic multinational company competing with a foreign multinational company in a third country. We demonstrate the role of the effective average tax rate and the effective marginal tax rate on the company's choices. We consider the impact on national welfare of alternative tax policies for outbound investment. Our results differ from existing models. In contrast to Feldstein and Hartman (1979), in our model, taxing foreign source income on accrual with a deduction for foreign taxes is not generally optimal. However, unlike Mintz and Tulkens (1996), the optimal policy for domestic and outbound investment is linked through the strategic choices of the multinational.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7920.

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Date of creation: Sep 2000
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Publication status: published as Devereux, Michael P. and R. Glenn Hubbard. "Taxing Multinationals," International Tax and Public Finance, 2003, v10(4,Aug), 469-487.
Handle: RePEc:nbr:nberwo:7920

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  1. Joel Slemrod, 1995. "Free trade taxation and protectionist taxation," International Tax and Public Finance, Springer, Springer, vol. 2(3), pages 471-489, October.
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  3. Jason Cummins & R. Glenn Hubbard, 1995. "The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data," NBER Chapters, National Bureau of Economic Research, Inc, in: The Effects of Taxation on Multinational Corporations, pages 123-152 National Bureau of Economic Research, Inc.
  4. James A. Brander, 1995. "Strategic Trade Policy," NBER Working Papers, National Bureau of Economic Research, Inc 5020, National Bureau of Economic Research, Inc.
  5. Gordon, Roger H, 1992. " Can Capital Income Taxes Survive in Open Economies?," Journal of Finance, American Finance Association, American Finance Association, vol. 47(3), pages 1159-80, July.
  6. Feldstein, Martin & Hartman, David, 1979. "The Optimal Taxation of Foreign," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(4), pages 613-29, November.
  7. Michael Devereux & Rachel Griffith, 1998. "The taxation of discrete investment choices," IFS Working Papers, Institute for Fiscal Studies W98/16, Institute for Fiscal Studies.
  8. Eckhard Janeba, 1993. "Foreign Direct Investment under Oligopoly: Profit Shifting of Profit Capturing?," Discussion Paper Serie A, University of Bonn, Germany 420, University of Bonn, Germany.
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  22. Feldstein, Martin & Hines, James R. & Hubbard, R. Glenn (ed.), 1995. "The Effects of Taxation on Multinational Corporations," National Bureau of Economic Research Books, University of Chicago Press, University of Chicago Press, edition 1, number 9780226240954, August.
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