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Tax competition in the presence of profit shifting

Author

Listed:
  • Steeve Mongrain

    (SFU.ca - Simon Fraser University = Université Simon Fraser)

  • David Oh

    (Canada Mortgage and Housing Corporation)

  • Tanguy van Ypersele

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

The popular view is that governments should crack down on tax avoidance by multinational corporations, but in practice, lax anti-profit-shifting policies are common. Here, we analyze how controlling profit shifting influences fiscal competition. Equilibrium tax rates are determined by the elasticities of two components: retained profit and capital mobility. Anti-profit-shifting policies decrease the elasticity of the first, but increase the elasticity of the second. The impact of these policies on equilibrium tax rates is then ambiguous. We show that there are cases in which laxer policies increase equilibrium tax rates and countries' well-being by favoring investments. We use estimates of different elasticities to show that our model can support lax enforcement.

Suggested Citation

  • Steeve Mongrain & David Oh & Tanguy van Ypersele, 2023. "Tax competition in the presence of profit shifting," Post-Print hal-04184030, HAL.
    • Handle: RePEc:hal:journl:hal-04184030
    DOI: 10.1016/j.jpubeco.2023.104940
    Note: View the original document on HAL open archive server: https://amu.hal.science/hal-04184030
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    Cited by:

    1. Haufler, Andreas & Schindler, Dirk, 2023. "Attracting profit shifting or fostering innovation? On patent boxes and R&D subsidies," European Economic Review, Elsevier, vol. 155(C).

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    More about this item

    Keywords

    Tax competition; Profit shifting; International taxation; Capital mobility;
    All these keywords.

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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