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Taxation under Formula Apportionment - Tax Competition, Tax Incidence, and the Choice of Apportionment Factors

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  • Dietmar Wellisch

Abstract

This paper analyzes tax competition for mobile capital among jurisdictions where capital is employed by the subsidiaries of a unitary firm. Equity capital of the unitary firm is taxed under a formula apportionment scheme, and each jurisdiction has the leeway to choose its desired mix of apportionment factors. The analysis reveals that jurisdictions decide for the use of immobile resources like immobile labor (payroll) as the only apportionment factor. The unitary firm shifts the tax burden to the owners of immobile resources. There is in fact no tax competition among jurisdictions, and the supply of local public goods is not distorted.

Suggested Citation

  • Dietmar Wellisch, 2004. "Taxation under Formula Apportionment - Tax Competition, Tax Incidence, and the Choice of Apportionment Factors," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(1), pages 24-41, April.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200404)60:1_24:tufa-t_2.0.tx_2-d
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    More about this item

    Keywords

    corporation income taxation; tax competition; tax policy;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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