Equilibria and Location Choice in Corporate Tax Regimes
This article considers the impact of preferential, base-specific taxation on equilibrium revenues. While policy makers have argued that it generates a prisoner’s dilemma result, there is mixed support in the academic literature. Using a more plausible model with asymmetric base elasticities and heterogeneity of both firms and countries, I find that preferential taxation can generate greater revenues if countries exhibit sufficient productivity and/or population asymmetry. It is also less distortionary except in cases where moving costs are fully deductible. Allowing for noncorrelated, cross-country profits is the key factor as it generates base expansion effects.
Niu, Ben J. (2017). "Equilibria and Location Choice in Corporate Tax Regimes." Public Finance Review 47`.2, 433-458.
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