Multinational corporations can shift income into low-tax countries through transfer pricing and debt financing. While most developed countries use thin capitalization rules to limit the extent to which a subsidiary can be financed with internal debt, a number of developing countries do not. In...

We study how harmonization of corporate tax systems affects the stability of international cartels. We show that tax base harmonization reinforces collusive agreements, while harmonization of corporate tax rates may destabilize or stabilize cartels. We also find that bilateral and full...

Increased activity of multinational firms exposes national corporate tax bases to cross-country profit shifting, but also leads to rising profitability of the corporate sector. We incorporate these two effects of economic integration into a simple political economy model where the median voter...

We investigate how multinational two-sided platform firms set their prices on intra firm transactions. Two-sided platform firms derive income from two customer groups that are connected through at least one positive network externality from one group to the other. A main finding is that even in...

The views on the welfare effects of tax competition differ widely. Some see the fiscal externalities as the cause for underprovision of public goods, while others see tax competition as means to reduce government inefficiencies. Using a comparative politics approach we show that tax competition...

We examine how a multinational’s choice to centralize or de-centralize its decision structure is affected by country tax differentials. Within a simple model that emphasizes the multiple conflicting roles of transfer prices in MNEs — here, as a strategic pre-commitment device and a tax...

We model how multinationals structure their borrowing and lending transactions and find that affiliates in high-tax countries have higher internal and overall debt ratios and lower rental rates of physical capital than comparable domestic firms. We also show that affiliates with minority owners...

In a recent article, Huizinga, Laeven and Nicodème (2008) present a novel model that motivates an extensive empirical analysis of international debt shifting. We point out that the model fails to account for internal debt, and that once internal debt is properly accounted for, the external debt...

This paper studies the market and welfare effects of two main tax reforms – the Corporate Business Income Tax (CBIT) and the Allowance for Corporate Equity tax (ACE). Using an imperfect-competition model for a small open economy, it is shown that the well-known neutrality property of ACE does...

This paper investigates how concealment costs of transfer pricing and the probability of detection affect transfer pricing and firm behavior. We find that transfer pricing in intermediate production factors does not affect real activity of a multinational firm if the firm’s concealment effort...