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This is the peer reviewed version of the following article: FERRETT, B. and WOOTON, I., 2010. Competing for a duopoly: international trade and tax competition. Canadian Journal of Economics, 43 (3), pp.776-794, which has been published in final form at: http://dx.doi.org/10.1111/j.1540-5982.2010.01594.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving. ; We analyse the tax/subsidy competition between two potential host governments to attract the plants of firms in a duopolistic industry. While competition between identical countries for a monopolist's investment is known to result in subsidy inflation,two firms can be taxed in equilibrium with the host countries appropriating the entire social surplus generated within the industry, despite explicit non-cooperation between governments. Trade costs mean that the firms prefer dispersed to co-located production,creating these taxation opportunities for the host countries. We determine the country-size asymmetry that changes the nature of the equilibrium, inducing concentration of production in the larger country.

This paper assesses the loss of tax revenue to the EU through aggressive corporate tax planning to be around 50-70 billion euro per annum. On an assumption of no base from sources other than profit shifting, then this figure jumps to 160-190 billion euro. The paper presents the methodology used and the country-by-country calculations on which these figures are based. It describes the common tools used in aggressive planning, and the impacts these have on tax revenue, concluding with an assessment of the inefficiencies created by individual tax arrangements for large multinational companies in the European Union. ; peer-reviewed