Competition for FDI and profit shifting: On the effects of subsidies and tax breaks

Oscar Amerighi, Giuseppe De Feo

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Abstract

We investigate competition for FDI within a region when a foreign multinational firm can profitably exploit differences in statutory corporate tax rates by shifting taxable profits to lower-tax jurisdictions. In such framework we show that targeted tax competition may lead to higher welfare for the region as a whole than lump-sum subsidies when the difference in statutory corporate tax rates and/or their average is high enough. Tax competition is also preferable from an efficiency point of view (overall surplus) by changing the firm's investment decision when profit shifting motivations induce the firm to locate in the (before tax) least profitable country.
Original languageEnglish
Number of pages28
Publication statusPublished - Sep 2013
Event25th SIEP (Italian Society of Public Economics) Annual Conference - Pavia, Italy
Duration: 26 Sep 201327 Sep 2013

Conference

Conference25th SIEP (Italian Society of Public Economics) Annual Conference
CountryItaly
CityPavia
Period26/09/1327/09/13

Keywords

  • competition
  • FDI
  • profit shifting
  • tax discrimination
  • tax breaks
  • welfare effects

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    Amerighi, O., & De Feo, G. (2013). Competition for FDI and profit shifting: On the effects of subsidies and tax breaks. Paper presented at 25th SIEP (Italian Society of Public Economics) Annual Conference , Pavia, Italy.