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Should profit shifting be prohibited? The importance of timing

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  • Robert Philipowski

    () (Universität Bonn)

Abstract

Measures against profit shifting, such as transfer pricing or thin capitalization rules, impose compliance costs even on firms which do not shift their profits. It is therefore not at all clear whether and under which circumstances such measures are desirable. In this note we investigate the influence of the timing of decisions on this question. In a very general setting we show that prohibiting profit shifting is less desirable if tax havens act as Stackelberg followers than if they take their policy decisions simultaneously with normal countries.

Suggested Citation

  • Robert Philipowski, 2016. "Should profit shifting be prohibited? The importance of timing," Economics Bulletin, AccessEcon, vol. 36(4), pages 2365-2367.
  • Handle: RePEc:ebl:ecbull:eb-16-00668
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    File URL: http://www.accessecon.com/Pubs/EB/2016/Volume36/EB-16-V36-I4-P228.pdf
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    References listed on IDEAS

    as
    1. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
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    5. You-Qiang Wang, 1999. "Commodity Taxes under Fiscal Competition: Stackelberg Equilibrium and Optimality," American Economic Review, American Economic Association, vol. 89(4), pages 974-981, September.
    6. Hubert Kempf & Grégoire Rota-Graziosi, 2010. "Endogenizing leadership in the tax competition race," Documents de travail du Centre d'Economie de la Sorbonne 10039, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    7. Georg Wamser, 2014. "The Impact of Thin-Capitalization Rules on External Debt Usage – A Propensity Score Matching Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(5), pages 764-781, October.
    8. Langenmayr Dominika, 2015. "Limiting Profit Shifting in a Model with Heterogeneous Firm Productivity," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(4), pages 1657-1677, October.
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    10. Michael Overesch & Georg Wamser, 2010. "Corporate tax planning and thin-capitalization rules: evidence from a quasi-experiment," Applied Economics, Taylor & Francis Journals, vol. 42(5), pages 563-573.
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    More about this item

    Keywords

    Profit shifting; Tax havens; Tax competition; Stackelberg equilibrium;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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