Working Paper: CEPR ID: DP3383
Authors: Hans Jarle Kind; Karen Helene Midelfart Knarvik; Guttorm Schjelderup
Abstract: Almost all the literature on tax competition in the presence of multinationals (MNCs) and profit shifting ignores trade costs. This Paper studies how economic integration, in terms of reduced trade costs and internationalization of ownership, affects tax competition and equilibrium corporate taxes. We find that equilibrium taxes increase subsequent to a reduction of trade costs if MNCs are owned by home country residents and also subsequent to increased internationalisation of ownership.
Keywords: corporate taxes; international ownership; international tax competition; multinational firms; trade liberalization
JEL Codes: F15; F20; H20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalization (F13) | equilibrium taxes (when MNCs are owned by foreign residents) (F23) |
| trade liberalization (F13) | equilibrium taxes (when MNCs are owned by home country residents) (F23) |
| increased foreign ownership (F23) | higher equilibrium tax rates (H29) |