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

See all articles by Sebastian Krautheim

Sebastian Krautheim

University of Passau

Tim Schmidt-Eisenlohr

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

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

Krautheim, Sebastian and Schmidt-Eisenlohr, Tim, Wages and International Tax Competition (May 30, 2014). Oxford University Centre for Business Taxation Working Paper No. 11/23, Available at SSRN: https://ssrn.com/abstract=1967468 or http://dx.doi.org/10.2139/ssrn.1967468

Sebastian Krautheim

University of Passau ( email )

Faculty of Economics and Business Administration
Dr. Hans-Kapfinger-Straße 14b
Passau, 94032
Germany

HOME PAGE: http://sites.google.com/site/krautheimecon/

Tim Schmidt-Eisenlohr (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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