The increasing importance of multinational firms raises the question as to whether and how governments should tax repatriated profits, i.e. affiliate profits returned to the headquarters. The answer to this question is especially relevant for profit repatriations within the European Union where...

The standard tax theory result that investment should not be distorted is based on the assumption that profits are locally bound. In this paper, we analyze the optimal tax policy in a model where firms are internationally mobile. We show that the optimal policy response to increasing firm...

In this comment, we argue that — even in the model used by Hines — full deductibility of costs under the exemption system is incompatible with nationally optimal tax policy. We derive an optimality rule which suggests that cost apportionment rules are efficient. Our findings also imply that...

In this paper, we consider optimal tax enforcement policy in the presence of profit shifting toward tax havens. We show that, under separate accounting, tax enforcement levels may be too high due to negative fiscal externalities. In contrast, under formula apportionment, tax enforcement is...

Most economists reject the idea that corporate taxation should be interpreted as a price for the privilege of limited liability. In this paper, we reconsider this idea and show that limited liability can lead to over investment if information is incomplete. In this setting, introducing an...

The ongoing internationalization of business activity fuels concerns that governments may lose their ability to tax business income. By using data on sixteen German states from 1970 to 2005, we estimate the impact of internationalization, measured by trade volumes and stocks of foreign direct...

A large part of border crossing investment takes the form of international mergers and acquisitions. In this article, we ask how optimal repatriation tax systems look like in a world where investment involves a change of ownership, instead of a reallocation of real capital. We find that the...

This paper analyses fiscal competition between two countries in a model where firms operating in imperfectly competitive markets may offshore their production to a low-cost third country. We show that this kind of cost-induced offshoring may have two externalities on the other country's welfare....

In this paper we ask whether recent claims that the US government should switch from the tax credit system to the exemption system are justified. We study corporate taxation in a model where international capital flows are either greenfield investment projects or acquisitions of existing firms,...

This paper measures quantity and quality effects of corporate taxation on foreign direct investments (FDI). While corporate taxes are well known to reduce the equilibrium stock of foreign capital in a given country, they may also change the quality of investment projects. Our analysis focuses on...