On the Neutrality of Profit Taxation under International Competition

Abstract

This paper investigates the neutrality of profit taxation under international competition. When the foreign entry mode is export, profit tax neutrality always holds under an oligopolistic market. However, profit tax neutrality only holds if the privatization policy is optimized under a mixed oligopolistic market. Furthermore, profit tax neutrality is irrelevant to whether the import tariff policy is endogenized. However, profit tax neutrality will not hold if there is FDI, even when the privatization policy and the import tariff policy are optimized. JEL classification: H21, L11, L22, L23