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Tax Competition when Firms Choose their Organizational Form: Should Tax Loopholes for Multinationals be Closed?

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  • Sam Bucovetsky
  • Andreas Haufler

Abstract

We analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings. Governments are able to commit to long-run tax discrimination policies before firms' decisions are made and before statutory capital tax rates are chosen non-cooperatively. Whether a coordinated reduction in the tax preferences granted to mobile firms is beneficial or harmful for the competing countries depends critically on the elasticity with which the firms' organizational structure responds to tax discrimination incentives. The model can be applied to policy initiatives that aim at a ban on preferential tax regimes and at reducing the profit shifting opportunities for multinational firms.

Suggested Citation

  • Sam Bucovetsky & Andreas Haufler, 2005. "Tax Competition when Firms Choose their Organizational Form: Should Tax Loopholes for Multinationals be Closed?," CESifo Working Paper Series 1625, CESifo.
  • Handle: RePEc:ces:ceswps:_1625
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    More about this item

    Keywords

    tax competition; multinational firms; preferential treatment;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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