Interjurisdictional Taxation and Attribution Rules

Abstract

An economic model of interjurisdictional taxation is developed and used to analyze the effects of different attribution rules on the location of production, sales, and input use. To illustrate the usefulness of the model, two methods of attribution are studied: separate accounting and formulary apportionment. It is shown that if the tax systems across jurisdictions are identical and neutral, then the attribution method is arbitrary. It is also shown that separate accounting rules can be developed using standard economic definitions even in cases where this method is claimed to fail.