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Corporate Taxation and Multinational Activity

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  • Peter Egger
  • Simon Loretz
  • Michael Pfaffermayr
  • Hannes Winner

Abstract

This paper assesses the impact of corporate taxation on multinational activity. A numerically solvable general equilibrium model of trade and multinational firms is used to incorporate the following components of corporate taxation: parent and host country statutory corporate tax rates, withholding tax rates, and parent and host country depreciation allowances. We account for their differential impact under alternative methods of double taxation relief (i.e., credit, exemption, and deduction). The hypotheses regarding the effects of changes in the tax parameters are investigated in a panel of bilateral OECD outbound stocks of foreign direct investment (FDI) from 1991 to 2002. For this, we compile annual information on taxation to construct the largest existing panel of tax parameters at the bilateral level based on national tax law and bilateral tax treaties. Our findings indicate that the parent country's statutory corporate tax rate tends to foster outward FDI, whereas the host country's statutory corporate and withholding tax rates are negatively associated with outward FDI. Depreciation allowances exert a significant impact on FDI, as hypothesized.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1773.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1773

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Keywords: corporate taxation; foreign; direct investment; panel econometrics;

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Citations

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Cited by:
  1. Peter Egger & Horst Raff, 2011. "Tax Rate and Tax Base Competition for Foreign Direct Investment," Kiel Working Papers 1734, Kiel Institute for the World Economy.
  2. Shafik Hebous & Martin Ruf & Alfons Weichenrieder, 2010. "The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments," CESifo Working Paper Series 3076, CESifo Group Munich.
  3. Michael Overesch & Georg Wamser, 2009. "Who Cares About Corporate Taxation? Asymmetric Tax Effects on Outbound FDI," The World Economy, Wiley Blackwell, vol. 32(12), pages 1657-1684, December.
  4. Troeger, Vera, 2012. "De Facto Capital Mobility, Equality, and Tax Policy in Open Economies," CAGE Online Working Paper Series, Competitive Advantage in the Global Economy (CAGE) 84, Competitive Advantage in the Global Economy (CAGE).
  5. Overesch, Michael, 2007. "The Effects of Multinationals? Profit Shifting Activities on Real Investments," ZEW Discussion Papers 07-071, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Heijdra, Ben J. & Ligthart, Jenny E., 2007. "Fiscal policy, monopolistic competition, and finite lives," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 325-359, January.
  7. Haufler, Andreas, 2006. "Die Besteuerung multinationaler Unternehmen," Discussion Papers in Economics 1153, University of Munich, Department of Economics.
  8. Lourdes Jerez Barroso, 2011. "Base imponible y neutralidad del Impuesto de Sociedades: alternativas y experiencias," Hacienda Pública Española, IEF, IEF, vol. 197(2), pages 113-146, June.
  9. 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, vol. 64(3), pages 817-38, September.

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