Scandinavian Working Papers in Economics

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

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

Andreas Haufler (), Alexander Klemm () and Guttorm Schjelderup ()
Additional contact information
Andreas Haufler: Department of Economics, University of Munich, Postal: University of Munich, Department of Economics, Akademiestr. 1 / II , 80799 Munich, Germany
Alexander Klemm: Fiscal Affairs Dept., International Monetary Fund (IMF), Postal: International Monetary Fund (IMF), Fiscal Affairs Department, 700 19th Street, NW, Washington, DC 20431 , USA
Guttorm Schjelderup: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway

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

JEL-codes: F23; H20

14 pages, March 12, 2008

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