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The Effects of Taxation on the Location Decision of Multinational Firms: M&a Versus Greenfield Investments

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  • Hebous, Shafik
  • Ruf, Martin
  • Weichenrieder, Alfons J.

Abstract

In this study, we estimate the impact of differences in international tax rates on the probability of choosing a location for an affiliate of a multinational firm. In particular, we distinguish between the tax sensitivity of Greenfield and Mergers and Acquisitions (M&A) investments. Based on a novel firm-level dataset on German outbound foreign direct investment (FDI), we find evidence that location decisions of M&A investments are less sensitive to differences in tax rates than location decisions of Greenfield investments. According to our logit estimates, after controlling for firm and country-specific characteristics, the tax elasticity for Greenfield investments is negative and in absolute value significantly larger than that associated with M&A investments. This finding is consistent with (partial) capitalization of taxes in the acquisition price when the FDI project takes the form of a M&A.

Suggested Citation

  • Hebous, Shafik & Ruf, Martin & Weichenrieder, Alfons J., 2011. "The Effects of Taxation on the Location Decision of Multinational Firms: M&a Versus Greenfield Investments," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(3), pages 817-838, September.
    • Handle: RePEc:ntj:journl:v:64:y:2011:i:3:p:817-38
    DOI: 10.17310/ntj.2011.3.03
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