Profit shifting and investment effects: The implications of zero-taxable profits

Koethenbuerger, Marko and Mardan, Mohammed and Stimmelmayr, Michael,(23 March 2019), Profit shifting and investment effects: The implications of zero-taxable profits. , Journal of Public Economics, UNSPECIFIED

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Recent empirical research documents a tendency of multinational enterprise affiliates to bunch around zero reported profit. We set up a theoretical model of multinational firm behavior in which we allow for corner solutions in the choice of the optimal transfer price due to insufficient profits or losses of affiliates. Such constraints in the choice of the transfer price induce bunching and generate investment effects in the low-tax as well as the high-tax country. In equilibrium, affiliates might overinvest and the investment effects generate a tendency for too high profit taxes. The analysis provides a micro-foundation for the investment effects that result from transfer pricing. The finding stands in contrast to the existing literature where transfer pricing choices are unconstrained.
Journal or Publication Title: Journal of Public Economics
Volume: 173
Item Type: Article
Subjects: Manajemen
Depositing User: Yuwono Yuwono
Date Deposited: 19 Dec 2019 10:28
Last Modified: 26 Apr 2021 05:17

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