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Tax incentives and the location of FDI: Evidence from a panel of German multinationals

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  • Thiess Buettner

    ()

  • Martin Ruf

    ()

Abstract

Using a firm-level panel data set this paper investigates the impact of taxation on the decision of German multinationals to hold or establish a subsidiary in other European countries or abroad. Taking account of unobserved local characteristics as well as firm-specific preferences for potential locations, the results confirm significant effects of tax incentives, market size, and of labor cost on cross-border location decisions. In accordance with Devereux and Griffith (1998) we find that the marginal effective tax rate has no predictive power for location decisions. However, the results indicate a considerably weaker predictive power of the effective average tax rate as compared to the statutory tax rate. Copyright Springer Science + Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s10797-006-8721-5
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 14 (2007)
Issue (Month): 2 (April)
Pages: 151-164

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Handle: RePEc:kap:itaxpf:v:14:y:2007:i:2:p:151-164

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Location; FDI; Corporate taxation; Firm-level data; Fixed-effects logit;

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  1. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
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  7. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
  8. Falko Fecht & Kevin Huang & Antoine Martin, 2004. "Financial intermediaries, markets, and growth," Research Working Paper RWP 04-02, Federal Reserve Bank of Kansas City.
  9. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  10. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  11. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle.
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