Abstract
This paper develops and solves a model of a multinational firm, who has the option to shift its earnings to a low-tax haven nation. Given the behaviour of the multinational firm, the haven nation solves a Ramsey optimal taxation problem, which involves choosing corporate and personal tax rates. I calibrate the model to a U.S. multinational that shifts its earnings to Bermuda: the classic example of a tax haven. Using the model, I find that if the U.S. moves to a territorial tax system, Bermuda will optimally respond by choosing a positive corporate tax rate, which will lead to a decrease in the earnings shifted by U.S. multinationals.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have