Competition for FDI and Profit Shifting on the Effects of Subsidies and Tax Breaks

Amerighi, Oscar and De Feo, Giuseppe (2013) Competition for FDI and Profit Shifting on the Effects of Subsidies and Tax Breaks. Discussion paper. University of Strathclyde, Glasgow.

[img]
Preview
Text (Amerighi-De-Feo-2013-Competition-for-fdi-and-profit-shifting-on-the-effects-of-subsidies-and-tax-breaks)
Amerighi_De_Feo_2013_Competition_for_fdi_and_profit_shifting_on_the_effects_of_subsidies_and_tax_breaks.pdf
Final Published Version

Download (411kB)| Preview

    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.