Wages and International Tax Competition
Oxford University Centre for Business Taxation Working Paper No. 11/23
48 Pages Posted: 3 Dec 2011 Last revised: 2 Jun 2014
There are 2 versions of this paper
Wages and International Tax Competition
Wages and International Tax Competition
Date Written: May 30, 2014
Abstract
We introduce wage bargaining and private information into a model of profit shifting and tax competition between a large and a small country. Shifting profits to the small country not only reduces a firms' tax bill but also creates private information on profitability, altering the wage bargaining in favor of the firm. The new shifting incentive makes the tax base of the large country more elastic and leads to higher outflows, lower wages, higher firm profits and lower equilibrium tax rates. Moreover, tax rates alone no longer determine the direction and the extent of profit shifting.
Keywords: wages, tax competition, rent-sharing, profit shifting, tax havens
JEL Classification: F23, H25, H73
Suggested Citation: Suggested Citation
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