The downside of formula apportionment: evidence on factor demand distortion

Riedel, Nadine (2010) The downside of formula apportionment: evidence on factor demand distortion. International Tax and Public Finance, 17 (3). pp. 236-258.

Abstract

This paper investigates the impact of corporate taxes on the input factor choice of multi-jurisdictional entities (MJEs) under a formula apportionment (FA) regime. Our testing ground is the German local business tax that applies FA regulations with income apportionment according to the relative payroll share. Using unique data on the population of German firms, we find that MJEs distort their employment and payroll costs in favor of low-tax locations. On average, a 1-percentage-pointincrease in the tax rate differential between an affiliate and foreign group members is found to lower the affiliate’s payroll to capital ratio by 1.9%.

Item Type: Article
Keywords: Corporate taxation; Formula apportionment; Micro data;
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 29 May 2012 13:39
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/3443

Actions (login required)

Edit View Edit View