Evolutionary Tax Competition with Formulary Apportionment
45 Pages Posted: 4 Dec 2017
Date Written: October 1, 2017
Evolutionary stability is a necessary condition for imitative dynamics of policy learning and innovation to come to a rest. We apply this concept to proﬁt tax competition in a regime where a common and consolidated proﬁt tax base for multi-jurisdictional ﬁrms is divided among governments by means of formulary apportionment. In evolutionary play, governments exhibit aggregate-taking behavior: when comparing their performance with others, they ignore their impact on the consolidated tax base. Consequently, evolutionarily stable tax rates are less eﬃcient than tax rates in best-response tax competition.
Keywords: Imitation and Learning, Tax Competition, Formulary Apportionment, CCCTB
JEL Classification: H77, H25, F23, C73
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