THE CHOICE OF APPORTIONMENT FACTORS UNDER FORMULA APPORTIONMENT*

Marco Runkel · Guttorm Schjelderup

36 citations0/0 files storedInternational Economic Review

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Corporate Taxation and Avoidance Taxation and Legal Issues Local Government Finance and Decentralization

Abstract

This paper investigates the choice of apportionment factors under a corporate tax system of Formula Apportionment. In contrast to perceived wisdom, we show that the apportionment formula contains both mobile (capital) and immobile (labor) factors, regardless of whether the formula is determined decentrally by jurisdictions or centrally by a central planner. The central planner uses the formula as a corrective instrument to internalize fiscal externalities. We calibrate the model to the European Union and show that replacing the current system of Separate Accounting by Formula Apportionment would substantially increase tax revenue and welfare under both centralized and decentralized formula choices.

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References

1999Theories of Tax Competition 1986Taxation of Investment and Savings in a World Economy 2006The marginal cost of public funds: Hours of work versus labor force participation 2001The Taxing Task of Taxing Transnationals 1997Capital income and profit taxation with foreign ownership of firms 1984An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment 1986An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment 1997On the Speed of Convergence in Endogenous Growth Models.

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n.d.Offshore Profit Shifting and Domestic Productivity Measurement 2006Exports, Foreign Direct Investment and the Costs of Corporate Taxation 2018Offshore Profit Shifting and Domestic Productivity Measurement 2017Formula Apportionment: Factor Allocation and Tax Avoidance 2017Tax revenue losses through cross-border loss offset: An insurmountable hurdle for formula apportionment?

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