Corporate Income Taxation of Multinationals in a General Equilibrium Model

29 Pages Posted: 9 Jun 2008

See all articles by Thomas Eichner

Thomas Eichner

University of Siegen - School of Economic Disciplines

Marco Runkel

University of Munich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 2008

Abstract

This paper contributes to the discussion on Separate Accounting versus Formula Apportionment in the corporate income taxation of multinational enterprises (MNEs). The innovation of the analysis is that we consider a general equilibrium tax competition model with an endogenously determined world interest rate. Under the principle of Separate Accounting, it turns out that corporate tax rates may be inefficiently low or high, while under Formula Apportionment corporate tax rates are always inefficiently low. These results are true independent of whether the number of countries is small or large. They reverse the insights obtained by previous studies under the assumption of an exogenously given world interest rate.

Keywords: corporate income tax, Separate Accounting, Formula Apportionment

JEL Classification: H7, H73

Suggested Citation

Eichner, Thomas and Runkel, Marco, Corporate Income Taxation of Multinationals in a General Equilibrium Model (June 2008). CESifo Working Paper Series No. 2320. Available at SSRN: https://ssrn.com/abstract=1142767

Thomas Eichner

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

Marco Runkel (Contact Author)

University of Munich - Department of Economics ( email )

Schackstr. 4
Munich, 80539
Germany
++49 (0) 89 2180 6339 (Phone)
++49 (0) 89 2180 3128 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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