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Heterogeneous Firms, ‘Profit Shifting’ FDI and International Tax Competition

Abstract:

Larger firms are more likely to use tax haven operations to exploit international tax differences. We study tax competition between a large country and a tax haven. In the large country, heterogeneous firms operate under monopolistic competition and can choose to shift profits abroad. We show that a higher degree of firm heterogeneity (a mean-preserving spread of the cost distribution) increases the degree of tax competition, i.e. it decreases the equilibrium tax rate of the large country, le...

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Publication date:
2011-02-05
URN:
uuid:69ca840e-5ff8-496e-ae1b-ca1eb1f85cf3
Local pid:
oai:eureka.sbs.ox.ac.uk:589

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