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The impact of tax and infrastructure competition on the profitability of local firms

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  • Yutao Han,
  • Patrice Pieretti
  • Giuseppe Pulina

Abstract

International capital mobility intensifies tax competition between jurisdictions. However, many firms only operate domestically and are internationally immobile. This paper aims to analyze the effect of tax competition on the profitability of local (immobile) firms, especially when tax and non-tax instruments, including infrastructure provision, are involved. We show that tax competition decreases investment and profit of local firms when internationally mobile firms do not benefit sufficiently from local infrastructure.

Suggested Citation

  • Yutao Han, & Patrice Pieretti & Giuseppe Pulina, 2020. "The impact of tax and infrastructure competition on the profitability of local firms," BCL working papers 149, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp149
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    More about this item

    Keywords

    Local firms; multinational rms; tax competition; infrastructure competition; tax harmonization.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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