We propose an explanation for why states choose different apportionment formulas for corporate income tax purposes. Based on a two-state equilibrium model of location choice by firms, we show that aggregate social welfare is maximized when both states use the same formula, regardless of which...

Develops and analyzes a model of Tax Court litigation, in which each side possesses private information regarding the facts under dispute. Characterizes equilibrium behavior for both conventional and final-offer arbitration. Compares the results of the two arbitration methods, both in terms of...

We investigate the use of bilateral advance pricing agreements (BAPAs) to resolve transfer pricing disputes between a taxpayer and two tax authorities. BAPAs are designed to protect firms from double taxation while reducing expected compliance costs. We identify settings in which we expect BAPAs...

Organizations that otherwise are exempt from federal income taxes are taxed on their net income from business activities that are unrelated to their exempt purpose. This paper examines three settings in which an exempt organization receives income subject to tax. Whether the tax promotes or...

We investigate the effects of inconsistent transfer prices on the location and efficiency of capital investments made by multinational firms in a competitive equilibrium. Inconsistent transfer prices create the potential for double taxation. We examine the effects of inconsistent transfer prices...