Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada

• 成果类型: Article; Proceedings Paper
• 署名作者: Mintz, J; Smart, M
• 署名单位: University of Toronto
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/S0047-2727(03)00060-4
• 发表日期: 2004
• 页码: 1149-1168
• 关键词: Tax competition; income shifting

摘要

We study corporate income taxation when firms operating in multiple jurisdictions can shift income using tax planning strategies. Because income of corporate groups is not consolidated for tax purposes in Canada, firms may use financial techniques, such as lending among affiliates, to reduce subnational corporate taxes. A simple theoretical model shows how income shifting affects real investment, government revenues, and tax base elasticities, depending on whether firms must allocate income to provinces or not. We then analyze data from administrative tax records to compare the behavior of corporate subsidiaries that may engage in income shifting to comparable firms that must use the statutory allocation formula to determine their taxable income in each province. The evidence suggests that income shifting has pronounced effects on provincial tax bases. According to our preferred estimate, the elasticity of taxable income with respect to tax rates for income shifting firms is 4.9, compared with 2.3 for other, comparable firms. (C) 2003 Elsevier B.V. All rights reserved.