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Corporate income taxation of multinationals and unemployment

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  • Eichner, Thomas
  • Runkel, Marco

Abstract

Within a two-country model with involuntary unemployment, this paper investigates corporate income taxation under separate accounting versus formula apportionment. In contrast to separate accounting, under formula apportionment the corporate tax policy causes a fiscal externality that results from unemployment. This externality is the highest when the apportionment formula contains the payroll factor only. It is minimized for the pure sales (property) formula, if the substitution elasticity is low (high). The unemployment externality tends to compensate other externalities such that tax rates become inefficiently low. The deviation from the efficient tax policy is minimized when the apportionment formula contains the sales factor only.

Suggested Citation

  • Eichner, Thomas & Runkel, Marco, 2009. "Corporate income taxation of multinationals and unemployment," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 610-620, September.
  • Handle: RePEc:eee:regeco:v:39:y:2009:i:5:p:610-620
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    Cited by:

    1. Nadine Riedel, 2011. "Taxing multi-nationals under union wage bargaining," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 399-421, August.
    2. Mardan, Mohammed & Stimmelmayr, Michael, 2018. "Tax revenue losses through cross-border loss offset: An insurmountable hurdle for formula apportionment?," European Economic Review, Elsevier, vol. 102(C), pages 188-210.
    3. Caterina Liesegang & Marco Runkel, 2009. "Corporate Income Taxation of Multinationals and Fiscal Equalization," CESifo Working Paper Series 2747, CESifo Group Munich.
    4. Becker, Johannes & Runkel, Marco, 2013. "Corporate tax regime and international allocation of ownership," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 8-15.

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