An Economic Analysis of Extraterritorial Taxation
09 June 2026 5:45 pm CEST
Mathieu Parenti (Paris School of Economics & INRAE) presents his research (joint with G. Zucman) in the Vienna International Economics Seminar (VIES) series
In cooperation with CEU, FIW, Universität Wien, WIFO, WIIW and WU.
Venue
University of Vienna at the Faculty of Business, Economics and Statistics
Oskar-Morgenstern-Platz 1
1090 Vienna
2nd floor, HS15
Description
This paper provides an economic analysis of extraterritorial taxation, whereby a country imposes top-up taxes on the foreign profits of multinationals accessing its market to enforce a minimum effective rate. We characterize incidence, welfare, and optimal unilateral policy in a flexible monopolistic-competition model, with extensions to oligopoly and carbon taxation. Four results emerge. First, extraterritorial taxation raises revenue but distorts prices upward in the taxing country and downward elsewhere through sales reshuffling; when foreign profits are untaxed, revenue gains dominate consumer losses for any country, regardless of size. Second, with a positive foreign rate welfare effects become ambiguous: the optimal top-up rises with domestic market share and falls with the foreign rate, so only sufficiently large coalitions can overtax already-taxed firms. Third, extraterritorial profit taxation welfare-dominates tariffs. Fourth, per-capita gains rise more than proportionally with coalition size. Rather than provoking retaliation, extraterritorial collection inverts tax competition and generates incentives for a race to the top—a logic that extends naturally to carbon pricing.
Speaker
Registration
Participants are requested to register in advance with Julia Hnidek
The VIES seminar is dedicated to frontier research in international economics and features presentations by renowned international scholars.
The VIES is a joint initiative of CEU, FIW, Universität Wien, WIFO, wiiw and WU.