Corporate Tax Systems, Multinational Enterprises, and Economic Integration

Schjelderup, Guttorm; Kind, Hans Jarle; Ulltveit-Moe, Karen Helene

doi:10.2139/ssrn.573261

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Corporate Tax Systems, Multinational Enterprises, and Economic Integration

26 Pages Posted: 6 Aug 2004

See all articles by Guttorm Schjelderup

Guttorm Schjelderup

NHH Norwegian School of Economics - Department of Business and Management Science

Hans Jarle Kind

Norwegian School of Economics & Business Administration (NHH); CESifo (Center for Economic Studies and Ifo Institute); NHH Norwegian School of Economics - Department of Economics

Karen Helene Ulltveit-Moe

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: July 2004

Abstract

Multinational firms are known to shift profits and countries are known to compete over shifty profits. Two major principles for corporate taxation are Separate Accounting (SA) and Formula Apportionment (FA). These two principles have very different qualities when it comes to preventing profit shifting and preserving national tax autonomy. Most OECD countries use SA. In this paper we show that a reduction in trade barriers lowers equilibrium corporate taxes under SA, but leads to higher taxes under FA. From a welfare point of view the choice of tax principle is shown to depend on the degree of economic integration.

Keywords: multinational enterprises, economic integration, trade costs, international tax competition, tax regimes

JEL Classification: F15, F23, H25, H87

Suggested Citation: Suggested Citation

Schjelderup, Guttorm and Kind, Hans Jarle and Ulltveit-Moe, Karen Helene, Corporate Tax Systems, Multinational Enterprises, and Economic Integration (July 2004). Available at SSRN: https://ssrn.com/abstract=573261 or http://dx.doi.org/10.2139/ssrn.573261