International Tax and Public Finance

, Volume 14, Issue 6, pp 631–655 | Cite as

Profit tax competition and formula apportionment

  • Rüdiger Pethig
  • Andreas WagenerEmail author


We analyze corporate income tax competition with international capital mobility when the common tax base is allocated to governments according to an apportionment formula. Labor can be either internationally mobile or immobile. We compare the Nash equilibria for different apportionment methods. Tax competition produces lower tax rates the more elastically the formula share responds to tax rate changes. More specifically, equilibrium tax rates are typically lowest when apportionment is based on property-shares, followed by payroll- and sales-shares apportionment. Compared to their cooperative levels, equilibrium tax rates are too low for property-share apportionment but tend to be too high for the other formulas.


Tax competition Formula apportionment 


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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.VWL IV, FB 5, University of SiegenSiegenGermany
  2. 2.Institute of Social PolicyUniversity of HannoverHannoverGermany

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