It is observed in the real world that taxes matter for location decisions and that multinationals shift profits by transfer pricing. The US and Canada use Formula Apportionment (FA) to tax corporate income, and the EU is debating a switch from Separate Accounting (SA) to FA. This paper develops...

Current political discussions in Germany and other European countries illustrate the importance accorded to revenue and distribution effects of tax reforms. Whereas widely recognized concepts of effective tax measures can provide important insights into the incentives of taxation they do not...