Multinational Taxation and International Emissions Trading
AbstractMany studies have shown that the activities of multinational corporations are quite sensitive to differences in income tax rates across countries. In this paper, I explore the interaction between multinational taxation and abatement activities under an international emissions permit trading scheme. Four types of plans are considered: (1) a single domestic permit system with international offsets; (2) separate national permit systems without trade; (3) separate national permit systems with limited offsets; and (4) an international permit trading system. For each plan, I model the incentives for the multinational firm to choose abatement activities at home and abroad and to transfer emissions credits between parent and subsidiary. Limits on trading across countries restrict efficiency gains from abatement, as is well known. But I show furthermore that if available offset opportunities are limited to actual abatement activities, those activities are more susceptible to distortions from incentives to shift taxable income. Transfer pricing rules can limit but not always eliminate these distortions. In a system of unlimited international trading, abatement is efficiently allocated across countries, but tax shifting can still be achieved through intra-firm transfer pricing. From the basis of efficiency for both environmental and tax policies, the best design is an international permit trading system with transparent, enforceable transfer pricing rules.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-01-18.
Date of creation: 01 Apr 2001
Date of revision:
emission permits; transfer pricing; taxation; multinational corporations;
Other versions of this item:
- Fischer, Carolyn, 2006. "Multinational taxation and international emissions trading," Resource and Energy Economics, Elsevier, vol. 28(2), pages 139-159, May.
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- F2 - International Economics - - International Factor Movements and International Business
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-ENE-2006-01-24 (Energy Economics)
- NEP-PBE-2006-01-24 (Public Economics)
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.:
- Rosanne Altshuler & T. Scott Newlon & William Randolph, 1996.
"Do Repatriation Taxes Matter? Evidence from the Tax Returns of U.S. Multinationals,"
Departmental Working Papers
199405, Rutgers University, Department of Economics.
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- Rosanne Altshuler & T. Scott Newlon & William C. Randolph, 1994. "Do Repatriation Taxes Matter? Evidence from the Tax Returns of U.S. Multinationals," NBER Working Papers 4667, National Bureau of Economic Research, Inc.
- Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
- James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc.
- Joosung Jun, 1995. "The Impact of International Tax Rules on the Cost of Capital," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 95-122 National Bureau of Economic Research, Inc.
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