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Department of Business and Management Science, Norwegian School of Economics (NHH) Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)

No 2008/4:
Redistributive taxation, multinational enterprises, and economic integration

Andreas Haufler (), Alexander Klemm () and Guttorm Schjelderup ()

Abstract: Increased activity of multinational firms exposes national corporate tax bases to cross-country profit shifting, but also leads to rising profitability of the corporate sector. We incorporate these two effects of economic integration into a simple political economy model where the median voter decides on a redistributive income tax rate. In this setting economic integration may raise or lower the equilibrium tax rate, and it is more likely to raise the tax rate of a low-tax country. The implications of the model are consistent with the empirical observations that effective corporate tax rates have not fallen in all OECD countries, and that corporate tax revenues have generally risen.

Keywords: Redistributive taxation; profit shifting; (follow links to similar papers)

JEL-Codes: F23; H20; (follow links to similar papers)

14 pages, March 12, 2008

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