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Corporate tax regime and international allocation of ownership

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  • Becker, Johannes
  • Runkel, Marco

Abstract

Would the introduction of a corporate tax system with consolidated tax base and formula apportionment lead to socially wasteful mergers and acquisitions across borders? This paper analyzes a two-country model in which firms consider acquisitions of already existing target firms in a high-tax country and a low-tax country. Two systems of corporate taxation are compared, a system with separate accounting and a system with tax base consolidation and formula apportionment. It is shown that, under separate accounting, the number of acquisitions is inefficiently high in both the high-tax and the low-tax country. Under formula apportionment, the number of acquisitions is inefficiently high in one country and inefficiently low in the other country. If both countries engage in tax competition, a novel externality arises that, under symmetry, aggravates the underprovision of public goods under both corporate tax regimes.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:regeco:v:43:y:2013:i:1:p:8-15
    DOI: 10.1016/j.regsciurbeco.2012.11.002
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    2. Johannes Becker, 2024. "Rationalizing Formula Apportionment," CESifo Working Paper Series 11234, CESifo.

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    More about this item

    Keywords

    Corporate taxation; Separate accounting; Formula apportionment;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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