Formula Apportionment, Tax Competition, and the Provision of Local Goods
AbstractThe paper develops an analytical framework where regional governments strategically determine the structure of the corporate profit tax system and profits are regionally allocated using an apportionment formula. Two important results emerge in a symmetric Nash equilibrium: (i) investment decisions are distorted, i.e., regional governments will not allow complete deduction of capital costs from taxable corporate profits; and (ii) there is underprovision of the good provided by the regional government, consistent with the literature on property tax competition. The paper also shows that the degree of underprovision may be less severe when the formula employs sales shares to apportion corporate profits. The model allows us to presume that the recent shift by most states in the U.S. towards a formula apportionment that gives a higher weight to the sales proportion may constitute a welfare improvement for all regions, compared to the original formula that weighs all factors equally.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Regional Research Institute, West Virginia University in its series Working Papers with number 200503.
Length: 18 pages
Date of creation: 2005
Date of revision:
Contact details of provider:
Postal: 886 Chestnut Ridge Road, P.O. Box 6825, Morgantown, WV 26506-6825
Phone: 304 293 2896
Fax: 304 293 6699
Web page: http://rri.wvu.edu/research/working-papers/
More information through EDIRC
apportionment; tax competition; local goods; macroeconomics; regional development;
Find related papers by JEL classification:
- E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
- P25 - Economic Systems - - Socialist Systems and Transition Economies - - - Urban, Rural, and Regional Economics
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
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.:
- Jan K. Brueckner & Luz A. Saavedra, 2000.
"Do Local Governments Engage in Strategic Property-Tax Competition?,"
Econometric Society World Congress 2000 Contributed Papers
0357, Econometric Society.
- Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 203-30, June.
- Klassen, Kenneth J. & Shackelford, Douglas A., 1998. "State and provincial corporate tax planning: income shifting and sales apportionment factor management," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 385-406, June.
- Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November.
- Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
- Haufler, Andreas & Schjelderup, Guttorm, 2000.
"Corporate Tax Systems and Cross Country Profit Shifting,"
Oxford Economic Papers,
Oxford University Press, vol. 52(2), pages 306-25, April.
- Haufler, A. & Schjelderup, G., 1999. "Corporate Tax Systems and Cross Country Profit Shifting," Papers 1/99, Norwegian School of Economics and Business Administration-.
- Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate tax systems and cross country profit shifting," Munich Reprints in Economics 20419, University of Munich, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Randall Jackson).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.