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| Author: | Krautheim, S. Schmidt-Eisenlohr, T. |
| Title: | Heterogeneous firms, "profit shifting" FDI and international tax competition |
| Journal: | Journal of Public Economics
2011 : FEB, VOL. 95:1-2, p. 122-133 |
| Index terms: | foreign investment tax havens government revenue competition |
| Language: | eng |
| Abstract: | Larger companies more likely use tax haven operations to exploit international tax differences. We investigate tax competition between a large country and a tax haven. In the former, heterogeneous firms operate under monopolistic competition and are able to choose to move profits abroad. A higher degree of firm heterogeneity (a mean-preserving spread of the cost distribution) is shown to increase the degree of tax competition, i.e. decrease the equilibrium tax rate for the large country, increase outflows of its tax base and thus decrease its tax revenues in equilibrium. The effects hold for a higher substitutability between varieties. |
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