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 (before tax) least profitable country.

Competition for FDI and Profit Shifting: On the Effects of Subsidies and Tax Breaks

DE FEO, GIUSEPPE
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 (before tax) least profitable country.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11571/985465
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