Jul 11, 2019

Innovation for tax avoidance: Product differentiation and the arm's length principle

International Conference on Public Economic Theory 2019
  • Hirofumi Okoshi

Event date
Jul 9, 2019 - Jul 11, 2019
Presentation type
Oral presentation (general)
Association for Public Economic Theory , University of Strasbourg
University of Strasboug

High product differentiation enhances consumers’ utility and firms’ profits but at the same time makes it difficult for tax authorities to audit MNEs’ tax avoidance strategies, as the arm’s length principle is difficult to apply. This paper combines these two aspects of product differentiation and studies the interrelation between profit shifting and product differentiation. The model shows that MNEs engage in more investment in product differentiation in the presence of profit shifting opportunities and globalization accelerates the investment. the model also show that globalization can improve welfare in a non-tax haven.