We show in a two-period world with endogenous savings and two assets, one of them exhibiting a stochastic return, that an interest-adjusted income tax is optimal. This tax leaves a riskless component of interest income tax free and taxes the excess return with a special tax rate. There is no...

We study how harmonization of corporate tax systems affects the stability of international cartels. We show that tax base harmonization reinforces collusive agreements, while harmonization of corporate tax rates may destabilize or stabilize cartels. We also find that bilateral and full...

By introducing controlled-foreign-corporation (CFC) rules, the parent country of a multinational firm reserves the right to tax the income of the firm's foreign affiliates, if the tax rate in the affiliate's host country is below a specified threshold. In this paper, we identify the conditions...

We analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings. Governments are able to commit to long-run tax discrimination policies before firms' decisions are made and before statutory capital tax rates are chosen...

We use a simple framework where firms in two countries serve their respective domestic markets and a world market to analyse under which conditions cost-reducing mergers will be beneficial for the merging firms, the home country, and the world as a whole. For a national merger, the policies...

This paper investigates how concealment costs of transfer pricing and the probability of detection affect transfer pricing and firm behavior. We find that transfer pricing in intermediate production factors does not affect real activity of a multinational firm if the firm’s concealment effort...

There is a growing concern that governments lose substantial corporate tax revenue due to transfer pricing and debt shifting strategies. Existing literature studies debt shifting and transfer pricing separately. In practice, however, the choice of debt-to-asset ratios in affiliates and the...

This paper examines the flexibility of multinational firms to use income-shifting strategies within a tax year to react to operating losses. First, we develop an analytical model that considers how affiliate losses can be adjusted by using the transfer prices of tangible and intangible assets,...

This paper sets up an imperfect-competition model of a small open economy, and undertakes a welfare comparison of the Corporate Business Income Tax (CBIT) and the Allowance for Corporate Equity tax (ACE). A main result is that a small open economy should levy a positive source tax on capital in...

Multinational corporations can shift income into low-tax countries through transfer pricing and debt financing. While most developed countries use thin capitalization rules to limit the extent to which a subsidiary can be financed with internal debt, a number of developing countries do not. In...