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Efficient tax competition under formula apportionment without the sales factor

Author

Listed:
  • Thomas Eichner

    (University of Hagen)

  • Marco Runkel

    (TU Berlin)

Abstract

Within a tax competition framework, this note points out that the tax principle of Formula Apportionment may render corporate income taxation of multinational enterprises efficient even if a sales apportionment factor is not available. This is shown for constant returns to scale production functions with substitution elasticity greater than or equal to one. In the special case of a Cobb-Douglas production function, efficiency is attained either if the formula uses only payroll or if the formula weights on production inputs equal these inputs' production elasticities.

Suggested Citation

  • Thomas Eichner & Marco Runkel, 2012. "Efficient tax competition under formula apportionment without the sales factor," Economics Bulletin, AccessEcon, vol. 32(4), pages 2828-2838.
    • Handle: RePEc:ebl:ecbull:eb-12-00584
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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I4-P272.pdf
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    References listed on IDEAS

    as
    1. Fox, William F. & Murray, Matthew N. & Luna, LeAnn, 2005. "How Should a Subnational Corporate Income Tax on Multistate Businesses Be Structured?," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(1), pages 139-159, March.
    2. Walter Hellerstein & Charles E. McLure, Jr., 2004. "The European Commission's Report on Company Income Taxation: What the EU Can Learn from the Experience of the US States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(2), pages 199-220, March.
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    Cited by:

    1. Mardan, Mohammed & Stimmelmayr, Michael, 2018. "Tax revenue losses through cross-border loss offset: An insurmountable hurdle for formula apportionment?," European Economic Review, Elsevier, vol. 102(C), pages 188-210.

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    More about this item

    Keywords

    tax competition; Formula Apportionment; sales factor;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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