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.
|Place of Publication||Glasgow|
|Publisher||University of Strathclyde|
|Number of pages||29|
|Publication status||Published - Oct 2013|
- policy competition for FDI
- profit shifting
- tax discrimination