volatility, especially in the past decade. Nevertheless, dollarised countries benefit from higher levels of investment and trade …

equilibrium, affiliates might over-invest and the bunching-related investment effects generate a tendency for too high profit … profit. Setting up a model that allows for profitable and loss-making affiliates of multinationals, we show that profit …-tax country induces bunching. Such bunching promotes investment incentives in the low-tax as well as the high-tax country. In …