Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed?

Sam Bucovetsky, Andreas Haufler
2005
We analyze a sequential game between two symmetric countries whenfirms can invest in a multinational structure that confers taxsavings. Governments are able to commit to long-run taxdiscrimination policies before firms' decisions are made andbefore statutory capital tax rates are chosen non-cooperatively.Whether a coordinated reduction in the tax preferences granted tomobile firms is beneficial or harmful for the competing countriesdepends critically on the elasticity with which the
more » ... zational structure responds to tax discriminationincentives. The model can be applied to recent policy initiativesthat aim at a ban on preferential tax regimes and at reducing theprofit shifting opportunities for multinational firms.
doi:10.5282/ubm/epub.729 fatcat:wtajlxrqcrgxznof4pig4y2vfm