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Competition for FDI and profit shifting: On the effects of subsidies and tax breaks

  • De Feo, Giuseppe
  • Amergighi, Oscar

We investigate competition for FDI within a region when a foreign multinational rm can profitably exploit differences in statutory corporate tax rates by shifting taxable pro ts to lower-tax jurisdictions. In such framework we show that targeted tax competition may lead to higher welfare for the region as a whole than lump-sum subsidies when the difference in statutory corporate tax rates and/or their average is high enough. Tax competition is also preferable from an efficiency point of view (overall surplus) by changing the firm's investment decision when pro t shifting motivations induce the rm to locate in the (before tax) least pro table country.

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File URL: http://hdl.handle.net/10943/530
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Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2013-105.

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Date of creation: 2013
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Handle: RePEc:edn:sirdps:530
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