How Should Income from Multinationals Be Taxed?

23 Pages Posted: 11 Jan 2017

See all articles by Roger H. Gordon

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics; Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: January 9, 2017

Abstract

What do models of optimal taxation imply about how multinationals should be taxed? Rather than focusing on a variety of neutrality conditions that have been proposed in the literature, this paper goes back to first principles and considers the overall role of the corporate tax. In doing so, the paper starts in a closed economy setting, and argues that the tax is needed to compensate for the favorable tax treatment of corporate income under the personal income tax. The paper then explores an open economy setting. The forecasted tax structure differs dramatically from those seen in practice if the aim is to tax capital as well as labor income of domestic residents. However, the forecasts are remarkably close to actual policies if the aim is simply to impose a uniform tax on all forms of labor income, responding to the pressures arising from income shifting both across countries and between the personal and corporate tax bases.

Keywords: corporate taxation, taxation of multinationals

JEL Classification: H25, F23, G15

Suggested Citation

Gordon, Roger H., How Should Income from Multinationals Be Taxed? (January 9, 2017). Available at SSRN: https://ssrn.com/abstract=2896437 or http://dx.doi.org/10.2139/ssrn.2896437

Roger H. Gordon (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-4828 (Phone)
858-534-7040 (Fax)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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