Taxing Multinationals under Union Wage Bargaining

Riedel, Nadine (2011) Taxing Multinationals under Union Wage Bargaining. International Tax and Public Finance, 18 (4). pp. 399-421.

Abstract

This paper investigates corporate taxation under separate accounting (SA)and formula apportionment (FA) in a model with union wage bargaining and multinational firms. Under SA, we find that increases in the corporate tax rate raise the wage level of domestic workers, while they lower the remuneration of foreign workers. The main insight emerging from a tax competition game is that the endogenous wage level gives rise to an ambiguous fiscal externality, which may dampen the race to the bottom in corporate tax rates. A switch to a tax system with FA principles reverses the impact of corporate taxes on negotiated wages. While increases in the corporate tax rate reduce domestic wages, they raise the wage level of foreign workers. In a tax competition game, the endogenous wage level gives rise to a positive fiscal externality that enforces the race-to-the-bottom in corporate tax rates.

Item Type: Article
Keywords: Corporate taxation · Multi-national firm · Union wage bargaining
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 29 May 2012 13:38
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/3444

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