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.
|Number of pages||28|
|Publication status||Published - Sep 2013|
|Event||25th SIEP (Italian Society of Public Economics) Annual Conference - Pavia, Italy|
Duration: 26 Sep 2013 → 27 Sep 2013
|Conference||25th SIEP (Italian Society of Public Economics) Annual Conference|
|Period||26/09/13 → 27/09/13|
- profit shifting
- tax discrimination
- tax breaks
- welfare effects
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.