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Strategic Taxation of the Multinational Enterprise: Profit-Shifting and Globally-Joint Inputs

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  • Denise Eby Konan

    () (Department of Economics, University of Hawaii at Manoa)

Abstract

This paper models strategic taxation policy of home and host governments when a multinational enterprise sets transfer prices on globally-joint inputs such as research and development. Tax credit and deduction allowances, as well as no taxation of foreign-earned profits, result in identical optimal transfer price solutions and national income effects in both countries. An equilibrium home tax solution is to tax foreign-earned profits at a higher rate than domestically earned profits. The multinational responds by shifting profits abroad through transfer pricing mechanisms.

Suggested Citation

  • Denise Eby Konan, 1995. "Strategic Taxation of the Multinational Enterprise: Profit-Shifting and Globally-Joint Inputs," Working Papers 199502, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:199502
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    References listed on IDEAS

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    More about this item

    Keywords

    transfer pricing; strategic taxation; multinational enterprise;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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