INTERNATIONALLY MOBILE FIRMS AND TAX POLICY

This paper analyses how the government should tax internationally mobi le firms. The analysis finds that if tax authorities are unable to obs erve firms' true mobility, and domestic and foreign profitability are uncorrelated, then: (1) information rents are acquired by immobile (in efficient) firms, and (2) the optimal policy will stimulate investment in the immobile sector compared to the complete information case. Ano ther result of the paper is that the optimal allocation is implementab le within the framework of a corporate income tax system, where mobile firms self-select more unfavourable capital allowances than immobile firms. (C) 1998 Elsevier Science B.V.