We study corporate income tax competition when firms operating in multiple jurisdictions can shift income using financial planning strategies. Several such strategies, particularly intra-corporate lending, appear to be actively pursued by companies to reduce subnational corporate taxes in Canada. A simple theoretical model shows how interjurisdictional tax planning can give rise to asymmetries in jurisdictions' tax policies, with one jurisdiction becoming a "tax haven" to attract taxable income through financial transactions, while others set higher statutory rates. Further, increased competition from tax havens may paradoxically lead to tax increases by hightax jurisdictions. Analysis of data from administrative tax records suggests income shifting has pronounced effects on provincial tax bases in Canada. According to our preferred estimate, the elasticity of taxable income with respect to tax rates for "tax shifting" firms is 4.3, compared to 1.6 for other, comparable firms.
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The multinationalization of corporate investment in recent years has given rise to a number of international tax avoidance schemes that may be eroding tax revenues in industrialized countries, but which may also reduce tax burdens on mobile capital and so facilitate investment. Both the welfare effects of and the optimal response to international tax planning are therefore ambiguous. Evaluating these factors in a simple general equilibrium model, we find that citizens of high-tax countries benefit from (some) tax planning. Paradoxically, if tax rates are not too high, an increase in tax planning activity causes a rise in optimal corporate tax rates, and a decline in multinational investment. Thus fears of a "race to the bottom" in corporate tax rates may be misplaced.
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This paper explores the logic of …scal restraints in a political agency model with both moral hazard and adverse selection. The role of the political process is both to discipline incumbents who may act against the public interest and to sort in those politicians who are most likely act in voters'interests. We use the model to examine the optimality of ine¢ cient taxation, limits on the size of government, increasing transparency, and yardstick competition. Some conclusions are surprising. For example, we show that some forms of …scal restraint can only be desirable when incumbents are su¢ ciently likely to be benevolent.We are grateful to Jim Hines and a number of seminar participants for insightful comments.
Summary. -This paper reviews the central issues that arise in designing intergovernmental transfers and surveys the approaches adopted in a number of countries, with special emphasis on developing countries. Since circumstances and objectives differ from country to country, no simple, uniform pattern of transfers is universally appropriate but experience around the world makes it clear that if services are to be efficiently provided, transfers must be designed so that those receiving them have a clear mandate, adequate resources, sufficient flexibility to make decisions and are accountable for results. Ó
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