Tax Enforcement and Tax Havens Under Formula Apportionment
FiFo-CPE Discussion Paper No. 07-8
30 Pages Posted: 24 Sep 2007
Date Written: September 18, 2007
In this paper, we consider tax enforcement policy in the presence of profit shifting towards tax havens. We show that, under separate accounting, tax enforcement levels may be too high due to negative fiscal externalities. In contrast, under formula apportionment, tax enforcement is likely to be too low due to positive externalities of tax enforcement. Our results challenge recent contributions arguing that, under formula apportionment, there is a tendency towards inefficiently high levels of (effective) tax rates.
Keywords: corporate taxation, foreign direct investment
JEL Classification: H25, F23
Suggested Citation: Suggested Citation