Article (Scientific journals)
A tax competition approach to resource taxation in developing countries
Bourgain, Arnaud; Zanaj, Skerdilajda
2019In Resources Policy, 65
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Keywords :
Royalties; Cost misreporting; Rent taxes; Resource countries
Abstract :
[en] In this paper, we investigate the effect of cost misreporting of extractive firms on the optimal design of tax policies. We build a two-period, two-country model where governments aim to attract a foreign-owned multinational firm to raise tax revenues by levying a profit tax and a royalty. The firm overstates its production costs to reduce declared profits and it decides in which country to locate. We find that cost overstatement pushes royalties upward but remains detrimental for tax revenues as well as the capital invested by the firm. The mining country that attracts the extractive firm is often the country with the highest coefficient of overstatement. However, the firm may locate in the country with the lowest overstatement and lowest royalty if both countries have the same profit tax. Reinforcing expertise in mining sectors to reduce asymmetries of information between firms and tax authorities appears to be a priority in developing resource countries.
Disciplines :
Economic systems & public economics
Author, co-author :
Bourgain, Arnaud ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM)
Zanaj, Skerdilajda  ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA)
External co-authors :
no
Language :
English
Title :
A tax competition approach to resource taxation in developing countries
Publication date :
2019
Journal title :
Resources Policy
ISSN :
0301-4207
Publisher :
Elsevier, United Kingdom
Volume :
65
Peer reviewed :
Peer Reviewed verified by ORBi
Focus Area :
Sustainable Development
Available on ORBilu :
since 07 June 2019

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