Optimal Tax Policy When Firms are Internationally Mobile
25 Pages Posted: 5 Dec 2005
Date Written: November 2005
The standard tax theory result that investment should not be distorted is based on the assumption that profits are locally bound. In this paper we analyze the optimal tax policy when firms are internationally mobile. We show that the optimal policy response to increasing firm mobility may be taxation, subsidization or non-distortion of investment depending on whether the mobile firms are more or less profitable than the average firm in the economy. Our findings may contribute to understanding recent tax policy developments in many OECD countries.
Keywords: corporate taxes, optimal tax policy
JEL Classification: H25, H21
Suggested Citation: Suggested Citation