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The impact of endogenous tax treaties on foreign direct investment: theory and evidence

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  • Peter Egger
  • Mario Larch
  • Michael Pfaffermayr
  • Hannes Winner

Abstract

This paper investigates the effect of tax treaties on bilateral stocks of outward FDI. For this purpose we employ a numerically solvable general equilibrium model of trade and multinational firms to study the impact of tax treaties on both welfare and outward FDI. The model indicates under which factor endowment configurations countries gain in welfare when implementing a tax treaty. This motivates an empirical specification of the endogenous selection into implementing new tax treaties. Using data of bilateral OECD outward FDI between 1985 and 2000, we find a significant negative impact of newly implemented tax treaties on outward FDI stocks.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 39 (2006)
Issue (Month): 3 (August)
Pages: 901-931

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Handle: RePEc:cje:issued:v:39:y:2006:i:3:p:901-931

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Cited by:
  1. Eric Neumayer, 2007. "Do double taxation treaties increase foreign direct investment to developing countries?," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3054, London School of Economics and Political Science, LSE Library.
  2. Peter Egger & Georg Wamser, 2013. "Effects of the Endogenous Scope of Preferentialism on International Goods Trade," CESifo Working Paper Series 4208, CESifo Group Munich.
  3. Nicholas Sly & Caroline Weber, 2013. "International Fiscal Policy Coordination and GDP Comovement," CESifo Working Paper Series 4358, CESifo Group Munich.
  4. Theo S Eicher & Lindy Helfman & Alex Lenkoski, 2011. "Robust FDI Determinants: Bayesian Model Averaging In The Presence Of Selection Bias," Working Papers, University of Washington, Department of Economics UWEC-2011-07-FC, University of Washington, Department of Economics.
  5. Michael Overesch & Georg Wamser, 2008. "Who Cares about Corporate Taxation? Asymmetric Tax Effects on Outbound FDI," Ifo Working Paper Series Ifo Working Paper No. 59, Ifo Institute for Economic Research at the University of Munich.
  6. Ronald B Davies & Pehr-Johan Norbäck & Ayça Tekin-Koru, 2007. "The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata," Working Papers, Oxford University Centre for Business Taxation 0721, Oxford University Centre for Business Taxation.
  7. Bruce A. Blonigen & Lindsay Oldenski & Nicholas Sly, 2011. "Separating the Opposing Effects of Bilateral Tax Treaties," NBER Working Papers 17480, National Bureau of Economic Research, Inc.
  8. Francis Weyzig, 2013. "Tax treaty shopping: structural determinants of Foreign Direct Investment routed through the Netherlands," International Tax and Public Finance, Springer, Springer, vol. 20(6), pages 910-937, December.
  9. Rudiger Ahrend & Antoine Goujard, 2012. "International Capital Mobility and Financial Fragility - Part 3. How Do Structural Policies Affect Financial Crisis Risk?: Evidence from Past Crises Across OECD and Emerging Economies," OECD Economics Department Working Papers 966, OECD Publishing.
  10. Daniel Millimet & Abdullah Kumas, 2007. "Reassessing the Effects of Bilateral Tax Treaties on US FDI Activity," Departmental Working Papers, Southern Methodist University, Department of Economics 0704, Southern Methodist University, Department of Economics.
  11. Arjan Lejour, 2014. "The Foreign Investment Effects of Tax Treaties," CPB Discussion Paper 265, CPB Netherlands Bureau for Economic Policy Analysis.
  12. Peter Egger & Georg Wamser, 2011. "Der Nutzen unterschiedlicher Arten von internationalen Wirtschaftsabkommen," KOF Analysen, KOF Swiss Economic Institute, ETH Zurich, KOF Swiss Economic Institute, ETH Zurich, vol. 5(2), pages 63-72, June.
  13. Martin Gassebner & Pierre-Guillaume Méon, 2010. "Where do Creditor Rights Matter? Creditor Rights, Political Constraints, and Cross-Border M&A Activity," Working Papers CEB, ULB -- Universite Libre de Bruxelles 10-019.RS, ULB -- Universite Libre de Bruxelles.

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