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The Revenue Consequences of Using Formula Apportionment to Calculate U.S. and Foreign-Source Income: A Firm-Level Analysis

  • Douglas Shackelford
  • Joel Slemrod

This paper examines the 1989–1993 publicly available financial reports of 46 U.S.-based multinationals to estimate the revenue implications of implementing a U.S. federal formula apportionment system. Ignoring behavioral responses, we estimate shifting to an equal-weighted, three-factor formula would have increased their U.S. tax liabilities by 38 percent, with an 81 percent increase for oil and gas firms. We find the firms report a lower percentage of their worldwide profits as American profits than their American share of assets, sales, or payroll. The results may be attributed to more profitable foreign operations, tax-motivated income shifting, or measurement error. Copyright Kluwer Academic Publishers 1998

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File URL: http://hdl.handle.net/10.1023/A:1008664408465
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 5 (1998)
Issue (Month): 1 (February)
Pages: 41-59

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Handle: RePEc:kap:itaxpf:v:5:y:1998:i:1:p:41-59
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  1. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
  2. Daniel Frisch, 1983. "Issues in the Taxation of Foreign Source Income," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 289-332 National Bureau of Economic Research, Inc.
  3. Bucks, Dan R. & Mazerov, Michael, 1993. "The State Solution to the Federal Government's International Transfer Pricing Problem," National Tax Journal, National Tax Association, vol. 46(3), pages 385-92, September.
  4. Randall Morck, 2006. "Corporations," Harvard Institute of Economic Research Working Papers 2101, Harvard - Institute of Economic Research.
  5. Giovannini, Alberto & Hubbard, R. Glenn & Slemrod, Joel (ed.), 1993. "Studies in International Taxation," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226297019.
  6. Alberto Giovannini & R. Glenn Hubbard & Joel Slemrod, 1993. "Studies in International Taxation," NBER Books, National Bureau of Economic Research, Inc, number giov93-1.
  7. Roger H. Gordon & John D. Wilson, 1984. "An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment," NBER Working Papers 1369, National Bureau of Economic Research, Inc.
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