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Optimal regulation of MNEs and government revenues

Research output: Contribution to journalJournal article

Published
<mark>Journal publication date</mark>02/1995
<mark>Journal</mark>Journal of Public Economics
Issue number2
Volume58
Number of pages20
Pages (from-to)215-234
<mark>State</mark>Published
<mark>Original language</mark>English

Abstract

The paper analyses the optimal regulation of multinational enterprises (MNEs) by a host government interested in maximizing tax revenues, when the MNE has private information about its benefits of controlling the enterprise. It is shown that the optimal mechanism involves restricting the MNEs ownership of the enterprise, and setting a ceiling on the transfer price of an input that the MNE provides that is above the known production cost of the input. For low realizations of the benefits of control, the MNE transfers control to a domestic partner, while for high realizations, it retains control.