IDEAS home Printed from https://ideas.repec.org/p/lmu/muenec/729.html
   My bibliography  Save this paper

Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed?

Author

Listed:
  • Bucovetsky, Sam
  • Haufler, Andreas

Abstract

We analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings. Governments are able to commit to long-run tax discrimination policies before firms' decisions are made and before statutory capital tax rates are chosen non-cooperatively. Whether a coordinated reduction in the tax preferences granted to mobile firms is beneficial or harmful for the competing countries depends critically on the elasticity with which the firms' organizational structure responds to tax discrimination incentives. The model can be applied to recent policy initiatives that aim at a ban on preferential tax regimes and at reducing the profit shifting opportunities for multinational firms.

Suggested Citation

  • Bucovetsky, Sam & Haufler, Andreas, 2005. "Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed?," Discussion Papers in Economics 729, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenec:729
    as

    Download full text from publisher

    File URL: https://epub.ub.uni-muenchen.de/729/1/loop-munichdp.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Janeba, Eckhard & Smart, Michael, 2003. "Is Targeted Tax Competition Less Harmful Than Its Remedies?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(3), pages 259-280, May.
    2. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
    3. Davies, Ronald B & Gresik, Thomas A, 2003. "Tax Competition and Foreign Capital," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 127-145, March.
    4. Peralta, Susana & Wauthy, Xavier & van Ypersele, Tanguy, 2006. "Should countries control international profit shifting?," Journal of International Economics, Elsevier, vol. 68(1), pages 24-37, January.
    5. Swenson, Deborah L., 2001. "Tax Reforms and Evidence of Transfer Pricing," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(1), pages 7-26, March.
    6. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, April.
    7. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    8. Keen, Michael & Lahiri, Sajal, 1998. "The comparison between destination and origin principles under imperfect competition," Journal of International Economics, Elsevier, vol. 45(2), pages 323-350, August.
    9. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June.
    10. Thomas A. Gresik, 2001. "The Taxing Task of Taxing Transnationals," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 800-838, September.
    11. Ignatius J. Horstmann & James R. Markusen, 2021. "Endogenous market structures in international trade (natura facit saltum)," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 2, pages 25-45, World Scientific Publishing Co. Pte. Ltd..
    12. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-892, September.
    13. Keen, Michael, 2001. "Preferential Regimes Can Make Tax Competition Less Harmful," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 757-762, December.
    14. Bartelsman, Eric J. & Beetsma, Roel M. W. J., 2003. "Why pay more? Corporate tax avoidance through transfer pricing in OECD countries," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2225-2252, September.
    15. Janeba, Eckhard & Peters, Wolfgang, 1999. "Tax Evasion, Tax Competition and the Gains from Nondiscrimination: The Case of Interest Taxation in Europe," Economic Journal, Royal Economic Society, vol. 109(452), pages 93-101, January.
    16. Hines, James R. Jr., 1999. "Lessons From Behavioral Responses to International Taxation," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 305-322, June.
    17. Cremer, Helmuth & Gahvari, Firouz, 2000. "Tax evasion, fiscal competition and economic integration," European Economic Review, Elsevier, vol. 44(9), pages 1633-1657, October.
    18. Bayindir-Upmann, Thorsten & Ziad, Abderrahmanne, 2005. "Existence of equilibria in a basic tax-competition model," Regional Science and Urban Economics, Elsevier, vol. 35(1), pages 1-22, January.
    19. Hong, Qing & Smart, Michael, 2010. "In praise of tax havens: International tax planning and foreign direct investment," European Economic Review, Elsevier, vol. 54(1), pages 82-95, January.
    20. Swenson, Deborah L., 2001. "Tax Reforms and Evidence of Transfer Pricing," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 7-26, March.
    21. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, vol. 88(6), pages 1149-1168, June.
    22. Kant, Chander, 1988. "Endogenous transfer pricing and the effects of uncertain regulation," Journal of International Economics, Elsevier, vol. 24(1-2), pages 147-157, February.
    23. Eckhard Janeba, 2000. "Tax Competition When Governments Lack Commitment: Excess Capacity as a Countervailing Threat," American Economic Review, American Economic Association, vol. 90(5), pages 1508-1519, December.
    24. Keen, Michael, 2001. "Preferential Regimes Can Make Tax Competition Less Harmful," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 757-62, December.
    25. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
    26. Osmundsen, P. & Hagen, K. P. & Schjelderup, G., 1998. "Internationally mobile firms and tax policy1," Journal of International Economics, Elsevier, vol. 45(1), pages 97-113, June.
    27. Marcel Gérard, 2005. "Multijurisdictional Firms and Governments’ Strategies under Alternative Tax Designs," CESifo Working Paper Series 1527, CESifo.
    28. Slemrod, Joel & Wilson, John D., 2009. "Tax competition with parasitic tax havens," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1261-1270, December.
    29. Alfons Weichenrieder, 1996. "Fighting international tax avoidance," Fiscal Studies, Institute for Fiscal Studies, vol. 17(1), pages 37-58, February.
    30. Haupt, Alexander & Peters, Wolfgang, 2005. "Restricting preferential tax regimes to avoid harmful tax competition," Regional Science and Urban Economics, Elsevier, vol. 35(5), pages 493-507, September.
    31. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Haufler, Andreas & Runkel, Marco, 2012. "Firms' financial choices and thin capitalization rules under corporate tax competition," European Economic Review, Elsevier, vol. 56(6), pages 1087-1103.
    2. Egger, Peter & Eggert, Wolfgang & Winner, Hannes, 2010. "Saving taxes through foreign plant ownership," Journal of International Economics, Elsevier, vol. 81(1), pages 99-108, May.
    3. Sven Stöwhase, 2005. "Asymmetric Capital Tax Competition with Profit Shifting," Journal of Economics, Springer, vol. 85(2), pages 175-196, August.
    4. Amerighi, Oscar & Peralta, Susana, 2010. "The proximity-concentration trade-off with profit shifting," Journal of Urban Economics, Elsevier, vol. 68(1), pages 90-101, July.
    5. Gaëtan Nicodème, 2006. "Corporate tax competition and coordination in the European Union: What do we know? Where do we stand?," European Economy - Economic Papers 2008 - 2015 250, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Mongrain, Steeve & Wilson, John D., 2018. "Tax competition with heterogeneous capital mobility," Journal of Public Economics, Elsevier, vol. 167(C), pages 177-189.
    7. O. Amerighi & S. Peralta, 2007. "Exports Versus Horizontal Foreign Direct Investment with Profit Shifting," Working Papers 604, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Wolfgang Eggert & Andreas Haufler, 2006. "Company-Tax Coordination cum Tax-Rate Competition in the European Union," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(4), pages 579-601, December.
    9. Haufler, Andreas, 2006. "Die Besteuerung multinationaler Unternehmen," Discussion Papers in Economics 1153, University of Munich, Department of Economics.
    10. Jean Hindriks & Yukihiro Nishimura, 2021. "Taxing multinationals: The scope for enforcement cooperation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(3), pages 487-509, June.
    11. Thiess Buettner & Michael Overesch & Georg Wamser, 2018. "Anti profit-shifting rules and foreign direct investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 553-580, June.
    12. Johannesen, Niels, 2010. "Imperfect tax competition for profits, asymmetric equilibrium and beneficial tax havens," Journal of International Economics, Elsevier, vol. 81(2), pages 253-264, July.
    13. George R. Zodrow, 2019. "Capital Mobility and Capital Tax Competition," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 18, pages 543-570, World Scientific Publishing Co. Pte. Ltd..
    14. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.
    15. repec:ces:ifodic:v:12:y:2015:i:4:p:19149988 is not listed on IDEAS
    16. John D. Wilson, 2015. "Tax Havens in a World of Competing Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(4), pages 32-39, 01.
    17. John D. Wilson, 2015. "Tax Havens in a World of Competing Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(04), pages 32-39, January.
    18. Krautheim, Sebastian & Schmidt-Eisenlohr, Tim, 2011. "Heterogeneous firms, 'profit shifting' FDI and international tax competition," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 122-133, February.
    19. Haufler, Andreas & Lülfesmann, Christoph, 2015. "Reforming an asymmetric union: On the virtues of dual tier capital taxation," Journal of Public Economics, Elsevier, vol. 125(C), pages 116-127.
    20. Marceau, Nicolas & Mongrain, Steeve & Wilson, John D., 2010. "Why do most countries set high tax rates on capital?," Journal of International Economics, Elsevier, vol. 80(2), pages 249-259, March.
    21. Bucovetsky, Sam & Haufler, Andreas, 2007. "Preferential Tax Regimes With Asymmetric Countries," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(4), pages 789-795, December.

    More about this item

    Keywords

    tax competition; multinational firms; preferential treatment;
    All these keywords.

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lmu:muenec:729. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tamilla Benkelberg (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.