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Asymmetric tax competition with formula apportionment

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  • Matthias Wrede

Abstract

This paper analyzes asymmetric tax competition under formula apportionment. It sets up a model with multinationals where two welfare-maximizing jurisdictions of different size levy source-based corporate taxes and allocate taxes using the formula approach. At the Nash equilibrium, tax rates are too low and public goods quantities are too small. The paper shows that the (marginally) larger country levies a larger tax rate compared to the smaller country. Citizens of the larger country are worse off than those of the smaller country. The larger country employs inefficiently little capital. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Matthias Wrede, 2014. "Asymmetric tax competition with formula apportionment," Letters in Spatial and Resource Sciences, Springer, vol. 7(1), pages 47-60, March.
    • Handle: RePEc:spr:lsprsc:v:7:y:2014:i:1:p:47-60
    DOI: 10.1007/s12076-013-0100-0
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    Cited by:

    1. Seppo Kari & Jussi Laitila & Olli Ropponen, 2018. "Investment Incentives and Tax Competition under the Allowance for Growth and Investment (AGI)," EconPol Working Paper 18, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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    More about this item

    Keywords

    Multinational enterprises; Corporate taxation; Formula apportionment; Asymmetric tax competition; H25; H42; H73;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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