The Nature and Practice of Capital Tax Competition

39 Pages Posted: 31 Aug 2014 Last revised: 6 Apr 2015

Date Written: April 5, 2015


This paper discusses the nature and practice of tax competition, with particular attention to tax competition by national governments to seek the activities of mobile multinational firms. Multinational firms are tax-sensitive in both the location of their real economic activities and especially in their financial arrangements that seek to locate profits in more lightly-taxed jurisdictions. While aggregate capital stocks are not particularly tax-sensitive across countries, the location of profits across countries is very tax sensitive. Evidence suggests that the revenue consequences of tax competition are likely to be large, and the distributional impact of tax competition is likely considerable. This suggests several tax policy design implications, including the likelihood of substantial gains from greater international cooperation, the possibility of improvements through unilateral action, and the importance of acknowledging the role of the corporate tax in the integrity of the larger income tax system.

Keywords: capital taxation, tax competition, corporate taxation, income shifting, tax avoidance, international taxation

Suggested Citation

Clausing, Kimberly A., The Nature and Practice of Capital Tax Competition (April 5, 2015). Available at SSRN: or

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