Access

You are not currently logged in.

Access JSTOR through your library or other institution:

login

Log in through your institution.

Journal Article

Local Taxation of Global Corporation: A Simple Solution

Jean Hindriks, Susana Perlata and Shlomo Weber
Annals of Economics and Statistics
No. 113/114, SPECIAL ISSUE ON THE ECONOMICS OF TAXATION (June 2014), pp. 37-65
Published by: GENES on behalf of ADRES
DOI: 10.15609/annaeconstat2009.113-114.37
Stable URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.113-114.37
Page Count: 29
Were these topics helpful?
See somethings inaccurate? Let us know!

Select the topics that are inaccurate.

Cancel
  • More info
  • Add to My Lists
  • Cite this Item
Local Taxation of Global Corporation: A Simple Solution
Preview not available

Abstract

The globalization of world markets has prompted firms' search for benefits of international tax differentials. In this paper we consider a simple world with two countries and two multinationals with a division in each country. Both countries, that differ in market size, use a source-based profit tax on multinationals, who compete à la Cournot in local markets and use profit shifting based on the tax differential. We assess policies aimed to mitigate inefficient tax choices and show that tax harmonization cannot benefit the small country. We then propose a simple revenue sharing mechanism in which countries share equal proportion of their own revenue with each other, and show that revenue sharing increases equilibrium tax rates in each country, reduces the tax differential, and benefits both countries. Lastly we show that contrary to revenue sharing, the tax base equalization formula raises a fundamental equity issue. JEL: F23, F68, H25, H70. / KEY WORDS: Heterogeneous countries, Profit Shifting, Tax Competition, Revenue Sharing.

Page Thumbnails