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Profit Tax Competition and Formula Apportionment

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  • Rüdiger Pethig

    ()

  • Andreas Wagener

Abstract

We analyse tax competition with corporate profit taxes in a common market where tax revenues are allocated according to an apportionment formula. As a general rule, tax competition is sharper the higher is the tax elasticity of the apportionment formula which, in turn, depends on the properties of production technologies. In particular: (i) If labour input is fixed, tax competition is sharpest if apportionment is based on property shares, followed by the sales and payroll shares. (ii) If capital and labour are endogenous and technologies are Cobb-Douglas, tax competition under the property- and the payroll-share rule is sharper than under the output-share formula. Whether payroll- or property-share apportionment generates sharper tax competition, depends on factor elasticities.

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Bibliographic Info

Paper provided by Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht in its series Volkswirtschaftliche Diskussionsbeiträge with number 106-03.

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Length: 31 pages
Date of creation: 2003
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Handle: RePEc:sie:siegen:106-03

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Keywords: Tax Competition; Formula Apportionment;

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  8. Dietmar Wellisch, 2004. "Taxation under Formula Apportionment - Tax Competition, Tax Incidence, and the Choice of Apportionment Factors," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 60(1), pages 24-, April.
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  16. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, Econometric Society, vol. 54(6), pages 1357-73, November.
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