Multinational Capital Structure and Tax Competition

29 Pages Posted: 10 May 2010

See all articles by Matthias Wrede

Matthias Wrede

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 1, 2010

Abstract

This paper analyzes tax competition when welfare maximizing jurisdictions levy source-based corporate taxes and multinational enterprises choose tax-efficient capital-to-debt ratios. Under separate accounting, multinationals shift debt from low-tax to high-tax countries. The Nash equilibrium of the tax competition game is characterized by underprovision of publicly provided goods. Under formula apportionment, the country-specific capital-to-debt ratio of a multinational’s affiliate is independent of the jurisdiction’s tax rate. Public good provision is either too large or too small. If the debt externality is not negative, there is clearly underprovision under formula apportionment.

Keywords: multinational enterprises, financial policy, profit shifting, corporate taxation, tax competition

JEL Classification: F23, H25, H42, H73

Suggested Citation

Wrede, Matthias, Multinational Capital Structure and Tax Competition (April 1, 2010). CESifo Working Paper Series No. 3041, Available at SSRN: https://ssrn.com/abstract=1601188 or http://dx.doi.org/10.2139/ssrn.1601188

Matthias Wrede (Contact Author)

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - Institute of Economics ( email )

Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
130
Abstract Views
1,261
Rank
395,220
PlumX Metrics