We characterize the effects of different methods of taxing multinational income on productive efficiency in a competitive equilibrium. The efficient outcome is achieved when every firm that produces and sells domestically faces the same tax rate as a multinational firm selling into the same...

We propose an explanation for why states choose different apportionment formulas for corporate income tax purposes. Based on a two-state equilibrium model of location choice by firms, we show that aggregate social welfare is maximized when both states use the same formula, regardless of which...