This paper links recent tax-rate-cut-cum-base-broadening reforms of corporate taxation to the closer integration of international trade. We study the corporate tax structure in a small open economy with heterogeneous firms, in a setting where it is optimal to subsidize capital inputs by granting...

This article analyzes profit taxation according to the arm’s length principle in a model where heterogeneous firms sort into foreign outsourcing. We show that multinational firms are able to shift profits abroad even if they fully comply with the tax code. This is because, in equilibrium,...

This paper models tax competition for mobile firms that aredifferentiated by their productivities Because taxes affect thedistribution of firms, they affect wages prices, and the number of firmsFrom the social planner’s perspective, optimal taxes efficientlydistribute income between private...

A two-sector trade model with specific factors and perfect international capital mobility is used to analyze the optimal mix of factor and commodity taxation in a small open economy that faces domestic or international constraints on its tax instruments. In the unconstrained benchmark case, the...

This paper analyses the effects of a regionally coordinated profit tax or location subsidy in a model with three active countries, one of which is not part of the union, and a globally mobile firm. We show that regional coordination can lead to two types of welfare gain. First, for investments...

We analyse tax competition between two countries of unequal size trying to attract a foreign-owned monopolist. When national governments have only a lump-sum profit tax (subsidy) at their disposal, but face exogenous and identical transport costs for imports, then both countries will be willing...

This article analyses tax competition between a unionised and a non-unionised country for the location of an outside firm. We show that unionisation increases the incentive for the government to attract a foreign investor, in order to affect the behaviour of the domestic union. This results in...

In many situations, governments have sector-specific tax and regulation policies at their disposal to influence the market outcome after a national or an international merger has taken place. In this paper we study the implications for merger policy when countries non-cooperatively deploy...

Current policy initiatives taken by the EU and the OECD aim at abolishing preferential corporate tax regimes. This note extends Keen’s (2001) analysis of symmetric capital tax competition under preferential (or discriminatory) and non-discriminatory tax regimes to allow for countries of...

This article analyzes the conditions under which the smaller of two otherwise identical countries prefers the noncooperative Nash equilibrium to a situation of fully harmonized tax rates. A standard two-country model of capital tax competition is extended by allowing for transaction costs,...