Competition for FDI and profit shifting: On the effects of subsidies and tax breaks
(2014) Finanzarchiv — Vol. 70, n° 3, p. 374-404 (2014)
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- 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.
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Amerighi, O., & De Feo, G. (2014). Competition for FDI and profit shifting: On the effects of subsidies and tax breaks. Finanzarchiv, 70(3), 374-404. https://doi.org/10.1628/001522114X684510 (Original work published 2014)