Corporate Income Taxation of Multinationals and Unemployment

37 Pages Posted: 12 Jan 2007

See all articles by Thomas Eichner

Thomas Eichner

University of Siegen - School of Economic Disciplines

Marco Runkel

University of Munich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 2006

Abstract

Within a two-country model with involuntary unemployment, this paper investigates corporate income taxation under separate accounting versus formula apportionment. In contrast to separate accounting, under formula apportionment the corporate tax policy causes a fiscal externality which goes back to unemployment. This unemployment externality is lowest when the apportionment formula does not contain a payroll factor. It tends to compensate other externalities such that tax rates become inefficiently low. In an empirical calibration, we show that the transition from separate accounting to formula apportionment improves welfare and reduces unemployment. The welfare increase is strongest under a pure sales formula.

Keywords: separate accounting, formula apportionment, unemployment

JEL Classification: H25, H71, J60

Suggested Citation

Eichner, Thomas and Runkel, Marco, Corporate Income Taxation of Multinationals and Unemployment (December 2006). CESifo Working Paper Series No. 1868. Available at SSRN: https://ssrn.com/abstract=956254

Thomas Eichner

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

Marco Runkel (Contact Author)

University of Munich - Department of Economics ( email )

Schackstr. 4
Munich, 80539
Germany
++49 (0) 89 2180 6339 (Phone)
++49 (0) 89 2180 3128 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
68
Abstract Views
503
rank
332,443
PlumX Metrics