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Tax Rate Harmonization, Renegotiation and Asymmetric Tax Competition for Profits with Repeated Interaction

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  • Eggert, Wolfgang
  • Itaya, Jun-ichi

Abstract

This paper analyzes a model of corporate tax competition with repeated interaction and with the strategic use of profit shifting within multinationals. We show that international tax coordination is more likely to prevail if the degree of asymmetry in terms of productivity differences between countries is smaller, or if concealment costs of profit shifting are larger when the tax authorities adopt grim-trigger strategies. Allowing for renegotiation in the tax harmonization process generally requires more patient tax authorities to support tax harmonization as a subgame perfect equilibrium. We find somewhat paradoxical situations where higher costs of profit shifting make international tax arrangements less sustainable under weakly-renegotiation-proof strategies.

Suggested Citation

  • Eggert, Wolfgang & Itaya, Jun-ichi, 2009. "Tax Rate Harmonization, Renegotiation and Asymmetric Tax Competition for Profits with Repeated Interaction," Discussion paper series. A 214, Graduate School of Economics and Business Administration, Hokkaido University.
  • Handle: RePEc:hok:dpaper:214
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    References listed on IDEAS

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    Cited by:

    1. Wolfgang Eggert & Gideon Goerdt & Sebastian Felix Heitzmann, 2018. "Transfer Pricing and Partial Tax Harmonization," CESifo Working Paper Series 6875, CESifo Group Munich.

    More about this item

    Keywords

    corporate taxation; tax coordination; multinational firms; H25; H87; F23;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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