Corporate income taxation and multinational production

Abstract Through the lens of a quantitative general equilibrium model of international trade and multinational production, this paper studies corporate tax competition and cooperation among asymmetric countries. The model theoretically supports the empirical regularities that corporate income taxation influences multinational firms' location and production decisions. Calibrating the model to three asymmetric countries for a hypothetical tax competition, I find that race to the bottom occurs in the Nash equilibrium. Furthermore, counterfactual analysis of the global minimum corporate tax shows welfare reduction compared to the equilibrium of tax competition but welfare improvement compared to the current tax regime.