Lifestyle Taxes in the Presence of Profit Shifting

15 Pages Posted: 10 Mar 2020

See all articles by Rosella Levaggi

Rosella Levaggi

University of Brescia - Department of Economics and Management

Carmen Marchiori

University of Brescia - Department of Economics and Management

Paolo M. Panteghini

Department of Economics and Management; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: 2020

Abstract

Non-communicable diseases (NCDs) cause about 71% of all deaths globally and a considerable increase in health care costs. To tackle this problem, several Governments have designed "sin taxes", i.e, extra payments related to the quantity of unhealthy contents of specific goods. However, unhealthy food and soda drinks are often produced by multinational companies for which also profit shifting is a serious issue. The international dimension of these markets may have a dramatic impact on the actual implementation of sin taxes. This article contributes to the literature by analysing the effectiveness of sin taxes levied on a good produced by a multinational company. Our analysis shows that a trade off between profit shifting and lifestyle taxes may exist. In general, the First Best sin tax cannot be levied if Governments are also interested in corporate tax revenue. This is a quite interesting policy issue: countries that today benefit from profit shifting may find it harder to impose significant lifestyle taxes. We also provide some insights about the effects that the international effort to fight profit shifting may have on lifestyle taxes.

Keywords: optimal lifestyle tax, multinational industry, profit shifting, health care costs, tax competition

JEL Classification: H210, H320, D110, D620, I180

Suggested Citation

Levaggi, Rosella and Marchiori, Carmen and Panteghini, Paolo M., Lifestyle Taxes in the Presence of Profit Shifting (2020). CESifo Working Paper No. 8138, Available at SSRN: https://ssrn.com/abstract=3551805

Rosella Levaggi (Contact Author)

University of Brescia - Department of Economics and Management ( email )

Via San Faustino 74B
Brescia, 25122
Italy
+39 03 0298 8825 (Phone)
+39 03 0298 8837 (Fax)

HOME PAGE: http://www.eco.unibs.it/segdse/rlev/index.htm

Carmen Marchiori

University of Brescia - Department of Economics and Management ( email )

Contrada Santa Chiara, 50
BRESCIA, BS 25122
Italy

Paolo M. Panteghini

Department of Economics and Management ( email )

Contrada Santa Chiara 50
BRESCIA, BS 25122
Italy

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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

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