DP2753 Corporate Taxation, Multinational Enterprise and Economic Integration

Author(s):	Hans Jarle Kind, Guttorm Schjelderup, Karen-Helene Ulltveit-Moe
Publication Date:	March 2001
Keyword(s):	Economic Integration, International Tax Competition, Multinational Enterprises, Tax Regimes
JEL(s):	F15, F23, H25, H87
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2753

This Paper studies how economic integration affects transfer pricing, tax policy and welfare, when multinationals are taxed either according to formula apportionment (FA) or separate accounting (SA). It is shown that economic integration induces multinationals to lower their transfer prices under both tax systems, but that transfer prices become less tax sensitive under FA than under SA. A main result of the paper is that economic integration lowers tax rates in the Nash equilibrium under SA, but leads to higher taxes in the Nash equilibrium under FA.