An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment

46 Pages Posted: 15 Mar 2004

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)

John D. Wilson

Michigan State University - Department of Economics

Date Written: June 1984

Abstract

This paper examines how corporate taxation of multijurisdictional firms using formula apportionment affects the incentives faced by individual firms and individual states. We find that formula apportionment creates factor price distortions which vary in general among firms within a state, and in such a way as often to put multistate firms at a competitive advantage. Formula apportionment also creates incentives for cross-hauling of output,with production in low tax rate states more profitably sold in hightax rate states, and conversely. Politically, formula apportionment appears to be very unstable --states face an incentive to shift to some other form of taxation. None of these problems exist when a corporate tax uses separate accounting.

Suggested Citation

Gordon, Roger H. and Wilson, John D., An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment (June 1984). NBER Working Paper No. w1369. Available at SSRN: https://ssrn.com/abstract=324012

Roger H. Gordon (Contact Author)

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

9500 Gilman Drive
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858-534-4828 (Phone)
858-534-7040 (Fax)

Harvard University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John D. Wilson

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States

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