Taxing multinationals in the presence of internal capital markets

Marko Koethenbuerger and Michael Stimmelmayr

Journal of Public Economics, 2016, vol. 138, issue C, 58-71

Abstract: There is ample evidence that internal capital markets incur efficiency costs for multinational enterprises (MNEs). This paper analyzes whether tax avoidance behavior interacts with these costs and how policies of competing governments respond to it. We show that the interaction in itself may lead to profit taxes that are inefficiently high (low), provided the costs are attenuated (magnified) by higher profit taxes. Further, internal efficiency costs might render infrastructure provision inefficiently low. We also clarify the implications of the decision to set up an internal capital market and of external finance for the behavior of competing governments. The results are consistent with empirical findings that are not inherently related to the notion of fiscal competition.

Keywords: Fiscal competition; Multinational firms; Internal efficiency costs; Managerial behavior; Corporate tax avoidance (search for similar items in EconPapers)
JEL-codes: D21 F23 H25 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047272716300317
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Taxing multinationals in the presence of internal capital markets (2014)
Working Paper: Taxing Multinationals in the Presence of Internal Capital Markets (2013)
Working Paper: Taxing Multinationals in the Presence of Internal Capital Markets (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:138:y:2016:i:c:p:58-71

DOI: 10.1016/j.jpubeco.2016.04.003

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().