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Corporate income taxation of multinationals in a general equilibrium model

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  • Eichner, Thomas
  • Runkel, Marco

Abstract

This paper contributes to the discussion on Separate Accounting versus Formula Apportionment in the corporate income taxation of multinational enterprises. The innovation is that we consider a general equilibrium tax competition model with an endogenous interest rate. In contrast to previous studies, we show that tax rates are inefficiently low not only under Separate Accounting, but also under Formula Apportionment. Moreover, we identify a wide range of empirically relevant cases where Formula Apportionment is superior to Separate Accounting, independent of the magnitude of the concealment cost of profit shifting. The reason for the change in results is that one country's tax rate affects other countries additionally via changes in the interest rate.

Suggested Citation

  • Eichner, Thomas & Runkel, Marco, 2011. "Corporate income taxation of multinationals in a general equilibrium model," Journal of Public Economics, Elsevier, vol. 95(7), pages 723-733.
    • Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:723-733
    DOI: 10.1016/j.jpubeco.2010.12.004
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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.
    2. repec:csg:ajrcwp:03 is not listed on IDEAS
    3. Matthias Wrede, 2013. "Multinational Financial Structure and Tax Competition," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(III), pages 381-404, September.
    4. Kazuki Onji, 2013. "Who participates in corporate income tax consolidation? Evidence from Japan," AJRC Working Papers 1303, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    5. Gresik, Thomas A., 2016. "Allowing firms to choose between separate accounting and formula apportionment taxation," Journal of Public Economics, Elsevier, vol. 138(C), pages 32-42.
    6. Matthias Wrede, 2014. "Asymmetric tax competition with formula apportionment," Letters in Spatial and Resource Sciences, Springer, vol. 7(1), pages 47-60, March.
    7. Ronald B Davies, 2012. "CCCTB 4 EU? SA vs. FA w/ FTA," Working Papers 201224, School of Economics, University College Dublin.
    8. Quint, Ansgar F. & Rudsinske, Jonas F., 2020. "International trade and tax-motivated transfer pricing," University of Göttingen Working Papers in Economics 406, University of Goettingen, Department of Economics.
    9. Becker, Johannes & Runkel, Marco, 2013. "Corporate tax regime and international allocation of ownership," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 8-15.
    10. Chen, Xuyang & Hindriks, Jean, 2023. "Multinational Taxation under Pressure: The Role of Tax Deductibility," LIDAM Discussion Papers CORE 2023013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Matthias Wrede, 2009. "Multinational Capital Structure and Tax Competition," MAGKS Papers on Economics 200934, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    12. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2010. "Company taxation and tax spillovers: Separate accounting versus formula apportionment," European Economic Review, Elsevier, vol. 54(1), pages 121-132, January.
    13. Hulya Celebi & Sabina Hodžić, 2017. "The Impact of Corporate Income Tax on R&D of Multinational Entities: An Impact Analysis of Separate Taxation and CCCTB," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2017(3), pages 17-31.
    14. Paliu – Popa Lucia & Cosneanu Lavinia & Popa Marcel, 2014. "Accounting – Taxation Report In Terms Of Deferred Taxes On Assets Revaluation," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 30-34, December.
    15. Ronald B Davies, 2013. "Tariff-induced Transfer Pricing and the CCCTB," Working Papers 201314, School of Economics, University College Dublin.
    16. Wolfgang Eggert & Gideon Goerdt & Sebastian Felix Heitzmann, 2018. "Transfer Pricing and Partial Tax Harmonization," CESifo Working Paper Series 6875, CESifo.
    17. Sara L. McGaughey & Pascalis Raimondos, 2019. "Shifting MNE taxation from national to global profits: A radical reform long overdue," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(9), pages 1668-1683, December.

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    More about this item

    Keywords

    Corporate income tax; Separate Accounting; Formula Apportionment;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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