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Corporate Tax Systems and Cross Country Profit Shifting
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Corporate Tax Systems and Cross Country Profit Shifting

Author

Listed:
  • Haufler, Andreas
  • Schjelderup, Guttorm

Abstract

The paper analyses optimal taxation of corporate profits when governments can choose both the rate and the base of the corporation tax, but are constrained to collect a given amount of corporate tax revenue. In a standard two-period model of investment and international mobility of portfolio capital only, the optimal tax system allows a full deduction for the costs of capital. When foreign direct investment is permitted, however, and firms can shift profits between countries through transfer pricing, it will be optimal for each government to distort investment decisions in order to reduce tax rates and limit the incentive for profit shifting. Copyright 2000 by Oxford University Press.

Suggested Citation

  • Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-325, April.
    • Handle: RePEc:oup:oxecpp:v:52:y:2000:i:2:p:306-25
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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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