DP2753 Corporate Taxation, Multinational Enterprise and Economic Integration

Author(s): Hans Jarle Kind , Guttorm Schjelderup , Karen-Helene Ulltveit-Moe

Publication Date: March 2001

Keyword(s): Multinational Enterprises , Tax Regimes , International Tax Competition , Economic Integration

JEL(s): F15 , F23 , H25 , H87

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP2753.asp

This Paper studies how economic integration affects transfer pricing, tax policy and welfare, when multinationals are taxed either according to formula apportionment (FA) or separate accounting (SA). It is shown that economic integration induces multinationals to lower their transfer prices under both tax systems, but that transfer prices become less tax sensitive under FA than under SA. A main result of the paper is that economic integration lowers tax rates in the Nash equilibrium under SA, but leads to higher taxes in the Nash equilibrium under FA.