We investigate competition for FDI within a region when a foreign multinational firm can profitably exploit differences in statutory corporate tax rates by shifting taxable profits to lower-tax jurisdictions. In such a framework we show that targeted tax competition may lead to higher welfare for the region as a whole than lump-sum subsidies when the difference in statutory corporate tax rates and/or their average is high enough. Tax competition can also increase overall surplus by changing the firm�s investment decision when profit-shifting motivations induce the firm to locate in the (beforetax) least profitable country.

Competition for FDI and profit shifting: On the effects of subsidies and tax breaks

Amerighi, O.
2014

Abstract

We investigate competition for FDI within a region when a foreign multinational firm can profitably exploit differences in statutory corporate tax rates by shifting taxable profits to lower-tax jurisdictions. In such a framework we show that targeted tax competition may lead to higher welfare for the region as a whole than lump-sum subsidies when the difference in statutory corporate tax rates and/or their average is high enough. Tax competition can also increase overall surplus by changing the firm�s investment decision when profit-shifting motivations induce the firm to locate in the (beforetax) least profitable country.
Policy competition for FDI;Profit shifting;Tax discrimination
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.12079/2531
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