Sebastian Krautheim, Tim Schmidt-Eisenlohr · 2016
Review of International Economics · Wiley

Wages and International Tax Competition

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 firm's tax bill but also creates private information on profitability, altering the wage bargaining in favor of the firm. This additional 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. Tax rates are no longer the only determinant of the direction and extent of profit shifting.

Full publication is available on: DOI 10.1111/roie.12227

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Sebastian Krautheim

Sebastian Krautheim
University of Passau

Sebastian Krautheim is a Professor of International Economics at the University of Passau. His research interests are in international trade, global value chains, and social activism. He is principle investigator of a DFG-funded research project on “Global Production and its Watchdogs: Firms and NGOs in the Regulatory Void”. He holds a PhD in Economics from the European University Institute.

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