DP3383 Why Corporate Taxes May Rise: The Case of Trade Liberalization and Foreign Ownership

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

Publication Date: May 2002

Keyword(s): international ownership , trade liberalization , multinational firms , corporate taxes , international tax competition

JEL(s): F15 , F20 , H20

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP3383.asp

Almost all the literature on tax competition in the presence of multinationals (MNCs) and profit shifting ignores trade costs. This Paper studies how economic integration, in terms of reduced trade costs and internationalization of ownership, affects tax competition and equilibrium corporate taxes. We find that equilibrium taxes increase subsequent to a reduction of trade costs if MNCs are owned by home country residents and also subsequent to increased internationalisation of ownership.