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Corporate Income Taxation of Multinationals and Unemployment

  • Thomas Eichner
  • Marco Runkel

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 which goes back to unemployment. This unemployment externality is the lowest when the apportionment formula does not contain a payroll factor. It tends to compensate other externalities such that tax rates become inefficiently low. In an empirical calibration, we show that the transition from separate accounting to formula apportionment improves welfare and reduces unemployment. The welfare increase is the strongest under a pure sales formula.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-12/cesifo1_wp1868.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1868.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1868
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  1. Clemens Fuest & Bernd Huber, 1999. "Tax Coordination and Unemployment," International Tax and Public Finance, Springer, vol. 6(1), pages 7-26, February.
  2. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November.
  3. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-25, April.
  4. Chirinko, Robert S., 2002. "Corporate Taxation, Capital Formation,and the Substitution Elasticity between Labor and Capital," National Tax Journal, National Tax Association, vol. 55(N. 2), pages 339-355, June.
  5. Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2004. "Corporate Tax Systems, Multinational Enterprises, and Economic Integration," CESifo Working Paper Series 1241, CESifo Group Munich.
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  7. GABSZEWICZ, J. J. & van YPERSELE, T., . "Social protection and political competition," CORE Discussion Papers RP -1230, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Kant, Chander, 1988. "Endogenous transfer pricing and the effects of uncertain regulation," Journal of International Economics, Elsevier, vol. 24(1-2), pages 147-157, February.
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  10. Rüdiger Pethig & Andreas Wagener, 2007. "Profit tax competition and formula apportionment," International Tax and Public Finance, Springer, vol. 14(6), pages 631-655, December.
  11. S¯ren Bo Nielsen & Pascalis Raimondos-M¯ller & Guttorm Schjelderup, 2003. "Formula Apportionment and Transfer Pricing under Oligopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 419-437, 04.
  12. Mihir A. Desai & C. Fritz Foley & James R. Hines, Jr., 2003. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," NBER Working Papers 9715, National Bureau of Economic Research, Inc.
  13. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  14. Marcel Gérard, 2006. "Reforming the Taxation of Multijurisdictional Enterprises in Europe, a Tentative Appraisal," CESifo Working Paper Series 1795, CESifo Group Munich.
  15. Wolfgang Eggert & Guttorm Schjelderup, 2003. "Symmetric Tax Competition under Formula Apportionment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 439-446, 04.
  16. Harry Huizinga & Gaetan Nicodeme, 2003. "Foreign Ownership and Corporate Income Taxation: An Empirical Evaluation," Public Economics 0310005, EconWPA.
  17. Pinto, Santiago M., 2007. "Corporate profit tax, capital mobility, and formula apportionment," Journal of Urban Economics, Elsevier, vol. 62(1), pages 76-102, July.
  18. Riedel, Nadine & Runkel, Marco, 2007. "Company tax reform with a water's edge," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1533-1554, August.
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  26. repec:ner:tilbur:urn:nbn:nl:ui:12-73857 is not listed on IDEAS
  27. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2010. "Company taxation and tax spillovers: Separate accounting versus formula apportionment," European Economic Review, Elsevier, vol. 54(1), pages 121-132, January.
  28. Arjan Lejour & Harrie Verbon, 1996. "Capital mobility, wage bargaining, and social insurance policies in an economic union," International Tax and Public Finance, Springer, vol. 3(4), pages 495-513, October.
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  31. Marcel Gérard, 2005. "Multijurisdictional Firms and Governments’ Strategies under Alternative Tax Designs," CESifo Working Paper Series 1527, CESifo Group Munich.
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