How relevant the substitution between real and virtual tax competition
will be is a contested empirical issue that depends on the tax elasticity of
real investment. The majority of studies expect a sizable effect (de Mooij
and Ederveen, 2008), so big country governments may be rightfully hesitant
to curb corporate profit shifting, for fear of a reduction in national
welfare due to job and real investment losses.5 In any event, the threat
of real dislocation alone should increase corporate capital’s influence on
governmental policies. Further, labour may not be an unambiguous supporter
of preventing corporate profit shifting, unless it is combined with an effective policy to also curb real tax competition, which involves the
relocation of jobs.