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Trade and Multinationals: The Effect of Economic Integration on Taxation and Tax Revenue

  • Kind, Hans Jarle
  • Schjelderup, Guttorm
  • Ulltveit-Moe, Karen-Helene

The rising importance of multinationals in the world economy has been accompanied by a rise in trade between affiliates of multinationals located in different countries, and by profits being shifted to low tax countries. The effect of trade barriers on taxation, intra firm trade and profit shifting has largely been ignored by both the trade literature and the public finance literature. This Paper analyses how competition over shifty profits affects tax policy as trade barriers are lowered. The main results are: (i) a reduction in trade barriers unambiguously leads to higher tax revenue for low or intermediate levels of trade costs; and (ii) that the effect on equilibrium tax rates depends on the proportion of the corporate tax bases that is foreign owned and how far economic integration has proceeded.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4312.

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Date of creation: Mar 2004
Date of revision:
Handle: RePEc:cpr:ceprdp:4312
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  1. 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.
  2. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
  3. J. Peter Neary, 2001. "Foreign Direct Investment and the Single Market," Development Working Papers 160, Centro Studi Luca d\'Agliano, University of Milano.
  4. Kant, Chander, 1990. "Multinational firms and government revenues," Journal of Public Economics, Elsevier, vol. 42(2), pages 135-147, July.
  5. Alfons Weichenrieder, 1996. "Fighting international tax avoidance," Fiscal Studies, Institute for Fiscal Studies, vol. 17(1), pages 37-58, February.
  6. Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February.
  7. repec:ttp:itpwps:0402 is not listed on IDEAS
  8. Trond Olsen & Petter Osmundsen, 2000. "Strategic Tax Competition; Implications of National Ownership," CESifo Working Paper Series 281, CESifo Group Munich.
  9. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, vol. 60(3), pages 401-422, June.
  10. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
  11. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  12. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
  13. Kashif S. Mansori & Alfons J. Weichenrieder, 2001. "Tax Competition and Transfer Pricing Disputes," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(1), pages 1-, December.
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