This paper studies how fixed costs of profit shifting shape international tax competition. We set up a formal model with two asymmetric countries: a non-haven country where a representative firm conducts its economic activity and a tax haven. The firm can allocate its profits to the tax haven, which incurs both fixed and variable costs. The presence of fixed costs creates an additional incentive for the non-haven country to reduce its tax rate in order to prevent profit shifting. We show that this can intensify tax competition and ultimately harm both countries, while being beneficial for the firm. Our results suggest that taking fixed costs into account significantly alters the nature of tax competition. This has implications for international measures to curb profit shifting activities, revealing potential adverse effects.

Anti–profit-shifting policies act on distinct firm margins, yet are often evaluated as a single category. I develop a continuous-time heterogeneous-firm model that separates three policy levers: the organizational cost of haven adoption (extensive margin), the marginal cost of shifting (intensive margin), and the statutory tax differential. A sunk adoption cost generates a band of inaction, while a convex shifting cost yields a closed-form shifting schedule increasing in firm size. Calibrated to 2019 U.S. data, the model shows that raising the adoption barrier leaves aggregate shifted profits nearly unchanged through an offsetting composition effect, whereas raising the marginal shifting cost or compressing the tax differential erodes or protects the tax base directly. In a Stackelberg tax-competition game, uncoordinated rate setting yields a welfare loss of about 7%, whereas a stylized Pillar Two floor at 21% eliminates strategic undercutting and raises welfare by about 10% relative to the calibrated baseline.

International bank transfers are the lifeblood of the global economy, funding trade and investment, but they can also conceal profit shifting and illicit activity. Multilateral efforts to grey-list worrisome countries aim to curb such flows, yet evidence of their effectiveness remains limited—perhaps because it relies on aggregate data dominated by unaffected, legal transactions. Using unique granular data from Norway (2012–2021), we likewise find no significant relationship for the average grey-listing effect. Even in the aggregate, however, inbound transfers from listed tax havens are markedly lower, and decomposing by purpose reveals that import payments, interest, and dividends—especially to tax havens—are roughly two-thirds lower when a haven is listed, a pattern driven largely by multinationals. This suggests listing may reduce profit shifting as well as illicit flows. The pattern is more pronounced after Norway aligned its anti-money laundering rules with EU mandates, pointing to the value of combining unilateral and multilateral approaches.

When a country like the United States taxes its citizens on worldwide income, it is well-understood that the creditability of foreign taxes affects the taxpayer’s overall tax burden. This paper shows that foreign tax creditability interacts with the standard irrelevance of statutory incidence results. When tax creditability depends on statutory form—as it does under IRS rules—shifting statutory incidence between equivalent tax bases can affect real wages, labour supply, tax revenue, and firm profits.