Competing for a duopoly : international trade and tax competition

Oligopoly is empirically prevalent in the industries where MNEs operate and national governments compete with fiscal inducements for their FDI projects. Despite this, existing formal treatments of fiscal competition generally focus on the polar cases of perfect competition and monopoly. We consider the competition between two potential host governments to attract the investment of both firms in a duopolistic industry. Competition by identical countries for a monopoly firm's investment is known to result in a 'race to the bottom' where all rents are captured by the firm through subsidies. We demonstrate that with two firms, both are taxed in equilibrium, despite the explicit non-cooperation between governments. When countries differ in size, a single firm will be attracted to the larger market. We explore the conditions under which both firms in the duopoly co-locate and when each nation attracts a firm in equilibrium. Our results are consistent with the observed stability of effective corporate tax rates in the face of ongoing globalization, and our analysis readily generalizes to many specifications with oligopoly in the product markets

Preferential tax regimes with asymmetric countries

Current policy initiatives taken by the EU and the OECD aim at abolishing preferential corporate tax regimes. This note extends Keen's (2001) analysis of symmetric capital tax competition under preferential (or discriminatory) and non-discriminatory tax regimes to allow for countries of different size. Even though size asymmetries imply a redistribution of tax revenue from the larger to the smaller country, a non-discrimination policy is found to have similar effects as in the symmetric model: it lowers the average rate of capital taxation and thus makes tax competition more aggressive in both the large and the small country

Company tax coordination cum tax rate competition in the European Union

This paper reviews the recent theoretical literature that analyses the European Union's policy to eliminate preferential corporate tax regimes and the proposal to introduce a consolidated EU tax base with formula apportionment for the taxation of multinational firms. Since neither proposal includes a harmonisation of corporate tax rates, a core issue is how tax competition between member states will be affected by these partial coordination measures. The conclusions from our review are supportive of the EU's ban on preferential tax regimes, but the economic incentive effects of a switch to formula apportionment are found to be ambiguous

Market structure and the taxation of international trade

The paper compares non-cooperative commodity taxation under the destination and origin principles under a variety of different assumptions about market structure. We consider a model of international duopoly with either quantity or price competition of firms and either segmented or integrated markets, and a monopolistic competition model with mobile firms. In each setting the international spillovers of tax policy are isolated and evaluated at the Pareto efficient tax rate. The sign of the net spillover, and thus the direction that commodity tax competition will take, depends critically on whether lump-sum taxes are available or commodity taxes must be used to finance the government budget

Regional Tax Coordination and Foreign Direct Investment

This paper analyses the effects of a regionally coordinated corporate income tax in a model with three active countries, one of which is not part of the union, and a globally mobile firm. We show that regional tax coordination can lead to two types of welfare gain. First, for investments that would take place in the union in the absence of coordination, a coordinated tax increase can transfer location rents from the firm to the union. Second, by internalising all of the union’s benefits from foreign direct investment, a coordinated tax reduction can attract more welfare-enhancing investment than when member states act in isolation. Depending on which motive dominates, tax levels may thus rise or fall under regional coordination

Independent Orbiter Assessment (IOA): Assessment of the data processing system FMEA/CIL

The results of the Independent Orbiter Assessment (IOA) of the Failure Modes and Effects Analysis (FMEA) and Critical Items List (CIL) are presented. The IOA effort first completed an analysis of the Data Processing System (DPS) hardware, generating draft failure modes and potential critical items. To preserve independence, this analysis was accomplished without reliance upon the results contained within the NASA FMEA/CIL documentation. The IOA results were then compared to the NASA FMEA/CIL baseline with proposed Post 51-L updates included. A resolution of each discrepancy from the comparison is provided through additional analysis as required. The results of that comparison is documented for the Orbiter DPS hardware

Prospects for co-ordination of corporate taxation and the taxation of interest income in the EU

This paper evaluates the recent proposals for a co-ordinated capital tax policy in the European Union, focusing on an EU-wide minimum withholding tax on interest income and alternative ways to increase the effective tax rate on corporate profits. The analysis draws on current theoretical and empirical research and views the recent capital tax reforms undertaken by individual member countries as rational adjustments to changing conditions in capital markets. Special emphasis is placed on the constraints for EU tax policy imposed by the possibility of shifting capital income to third countries. The paper concludes that some aggregate efficiency gains can be expected from the EU co-ordination proposals, but additional tax collections will be limited largely to the group of small savers while highly mobile large-scale investors are likely to avoid the EU tax.

Independent Orbiter Assessment (IOA): Analysis of the DPS subsystem

The results of the Independent Orbiter Assessment (IOA) of the Failure Modes and Effects Analysis/Critical Items List (FMEA/CIL) is presented. The IOA approach features a top-down analysis of the hardware to independently determine failure modes, criticality, and potential critical items. The independent analysis results corresponding to the Orbiter Data Processing System (DPS) hardware are documented. The DPS hardware is required for performing critical functions of data acquisition, data manipulation, data display, and data transfer throughout the Orbiter. Specifically, the DPS hardware consists of the following components: Multiplexer/Demultiplexer (MDM); General Purpose Computer (GPC); Multifunction CRT Display System (MCDS); Data Buses and Data Bus Couplers (DBC); Data Bus Isolation Amplifiers (DBIA); Mass Memory Unit (MMU); and Engine Interface Unit (EIU). The IOA analysis process utilized available DPS hardware drawings and schematics for defining hardware assemblies, components, and hardware items. Each level of hardware was evaluated and analyzed for possible failure modes and effects. Criticality was assigned based upon the severity of the effect for each failure mode. Due to the extensive redundancy built into the DPS the number of critical items are few. Those identified resulted from premature operation and erroneous output of the GPCs

Subsidy Competition and the Role of Firm Ownership

This paper addresses the role that foreign vs. domestic ownership of companies plays for governments in asymmetric countries' competition for a multinational's subsidiary. I argue that equilibrium subsidies as well as a foreign investor's location decision in policy competition between these countries critically depend on the ownership structure of incumbent firms. This shows that small countries with few national incumbents in an industry may be successful in attracting multinationals

The choice of commodity tax base in the presence of horizontal foreign direct investment

We analyse the choice of commodity tax base, when countries set their taxes non-cooperatively in a reciprocal dumping model of homogeneous goods trade with horizontal foreign direct investment (FDI). We show that the consumption base (destination principle) weakly welfare-dominates the production base (origin principle) for a large range of plant fixed costs. When integration is complete, the destination principle dominates the origin principle for all levels of plant fixed costs below which FDI occurs under the origin principle. This contrasts with much of the existing literature which has tended to support the origin principle under imperfect competition with a fixed market structure