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Optimal tax policy when firms are internationally mobile

  • Johannes Becker

    ()

  • Clemens Fuest

    ()

The standard tax theory result that investment should not be distorted is based on the assumption that profits are locally bound. In this paper we analyze the optimal tax policy in a model where firms are internationally mobile. We show that the optimal policy response to increasing firm mobility may be taxation, subsidization or non-distortion of the marginal investment, depending on whether the mobile firms are more or less profitable than the average firm in the economy. Our findings may contribute to understanding recent tax policy developments in many OECD countries.

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File URL: http://hdl.handle.net/10.1007/s10797-011-9168-x
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Article provided by Springer & International Institute of Public Finance in its journal International Tax and Public Finance.

Volume (Year): 18 (2011)
Issue (Month): 5 (October)
Pages: 580-604

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Handle: RePEc:kap:itaxpf:v:18:y:2011:i:5:p:580-604
DOI: 10.1007/s10797-011-9168-x
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  17. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
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  20. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
  21. Abderrahmane Ziad & T. Bayindir-Upmann, 2005. "Existence of Equilibria in a Basic Tax-competition Model," Post-Print halshs-00068854, HAL.
  22. Fuest, Clemens, 2005. "Economic integration and tax policy with endogenous foreign firm ownership," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1823-1840, September.
  23. Robin Boadway & Katherine Cuff & Nicolas Marceau, 2002. "Inter-Jurisdictional Competition for Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 761-782, August.
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