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Merger Policy and Tax Competition

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  • Andreas Haufler
  • Christian Schulte

Abstract

In many situations governments have sector-specific tax and regulation policies at their disposal to influence the market outcome after a national or an international merger has taken place. In this paper we study the implications for merger policy when countries non-cooperatively deploy production-based taxes. We find that whether national or international mergers are more likely to be enacted in the presence of nationally optimal tax policies depends crucially on the ownership structure of firms. When all firms are owned domestically in the pre-merger situation, non-cooperative tax policies are more efficient in the national merger case and smaller synergy effects are needed for this type of merger to be proposed and cleared. These results are reversed when there is a high degree of foreign firm ownership prior to the merger.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2157.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2157

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Keywords: merger regulation; tax competition;

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References

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  1. Huizinga, Harry & Nicodeme, Gaetan, 2003. "Foreign Ownership and Corporate Income Taxation: An Empirical Evaluation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3952, C.E.P.R. Discussion Papers.
  2. Keen, Michael & Lahiri, Sajal & Raimondos-Moller, Pascalis, 2002. "Tax principles and tax harmonization under imperfect competition: A cautionary example," European Economic Review, Elsevier, Elsevier, vol. 46(8), pages 1559-1568, September.
  3. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-64, October.
  4. Horn, H. & Levinsohn, J., 1998. "Merger Policies and Trade Liberalization," Working Papers, Research Seminar in International Economics, University of Michigan 420, Research Seminar in International Economics, University of Michigan.
  5. Lockwood, B., 2000. "Tax Competition and Tax Co-Ordination Under Destination and Origin Principles: A Synthesis," The Warwick Economics Research Paper Series (TWERPS) 567, University of Warwick, Department of Economics.
  6. Huck, Steffen & Konrad, Kai A., 2001. "Merger profitability and trade policy," Discussion Papers, Research Unit: Market Processes and Governance FS IV 01-12, Social Science Research Center Berlin (WZB).
  7. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," Working Paper Series, Research Institute of Industrial Economics 515, Research Institute of Industrial Economics.
  8. Huizinga, H.P. & Nielsen, S.B., 1995. "Capital income and profits taxation with foreign ownership of firms," Discussion Paper, Tilburg University, Center for Economic Research 1995-82, Tilburg University, Center for Economic Research.
  9. Lommerud, Kjell Erik & Straume, Odd Rune & Sørgard, Lars, 2003. "National versus international mergers in unionised oligopoly," Working Papers in Economics, University of Bergen, Department of Economics 12/03, University of Bergen, Department of Economics.
  10. Johannes Becker & Clemens Fuest, 2007. "Corporate Tax Policy and International Mergers and Acquisitions – Is the Tax Exemption System Superior?," CESifo Working Paper Series 1884, CESifo Group Munich.
  11. Jens Südekum, 2008. "Cross-Border Mergers and National Champions in an Integrating Economy," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 164(3), pages 477-508, September.
  12. Andreas Haufler & Søren Bo Nielsen, 2008. "Merger policy to promote 'global players'? A simple model," Oxford Economic Papers, Oxford University Press, vol. 60(3), pages 517-545, July.
  13. Keen, Michael & Lahiri, Sajal, 1998. "The comparison between destination and origin principles under imperfect competition," Journal of International Economics, Elsevier, Elsevier, vol. 45(2), pages 323-350, August.
  14. J Peter Neary, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," Working Papers, School Of Economics, University College Dublin 200404, School Of Economics, University College Dublin.
  15. Röller, Lars-Hendrik & Stennek, Johan & Verboven, Frank, 2000. "Efficiency Gains from Mergers," Working Paper Series, Research Institute of Industrial Economics 543, Research Institute of Industrial Economics.
  16. Kamal Saggi & Halis Murat Yildiz, 2006. "On the International Linkages between Trade and Merger Policies," Review of International Economics, Wiley Blackwell, vol. 14(2), pages 212-225, 05.
  17. Dahlquist, Magnus & Pinkowitz, Lee & Stulz, René M. & Williamson, Rohan, 2002. "Corporate Governance and the Home Bias," SIFR Research Report Series, Institute for Financial Research 11, Institute for Financial Research.
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  19. Norbäck, Pehr-Johan & Persson, Lars, 2006. "Investment Lilberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive," Working Paper Series, Research Institute of Industrial Economics 666, Research Institute of Industrial Economics.
  20. Barros, Pedro P. & Cabral, Luis, 1994. "Merger policy in open economies," European Economic Review, Elsevier, Elsevier, vol. 38(5), pages 1041-1055, May.
  21. Andreas HaufLer & Guttorm Schjelderup & Frank Stähler, 2005. "Barriers to Trade and Imperfect Competition: The Choice of Commodity Tax Base," International Tax and Public Finance, Springer, Springer, vol. 12(3), pages 281-300, May.
  22. Fuest, Clemens, 2005. "Economic integration and tax policy with endogenous foreign firm ownership," Journal of Public Economics, Elsevier, Elsevier, vol. 89(9-10), pages 1823-1840, September.
  23. Focarelli, Dario & Pozzolo, Alberto Franco, 2001. "The patterns of cross-border bank mergers and shareholdings in OECD countries," Journal of Banking & Finance, Elsevier, Elsevier, vol. 25(12), pages 2305-2337, December.
  24. repec:fth:iniesr:543 is not listed on IDEAS
  25. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 185-99, May.
  26. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu & Christine Zulehner, 2001. "The Effects of Mergers: An International Comparison," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 01-21, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  27. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
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Citations

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Cited by:
  1. Becker, Johannes & Fuest, Clemens, 2011. "Source versus residence based taxation with international mergers and acquisitions," Journal of Public Economics, Elsevier, Elsevier, vol. 95(1), pages 28-40.
  2. Johannes Becker & Clemens Fuest, 2007. "Taxing Foreign Profits with International Mergers and Acquisitions," Working Papers, Oxford University Centre for Business Taxation 0719, Oxford University Centre for Business Taxation.
  3. Johannes Becker & Clemens Fuest, 2008. "Tax Competition – Greenfield Investment versus Mergers and Acquisitions," CESifo Working Paper Series 2247, CESifo Group Munich.
  4. Sjögren, Anna, 2010. "Graded Children – Evidence of Longrun Consequences of School Grades from a Nationwide Reform," Working Paper Series, Research Institute of Industrial Economics 839, Research Institute of Industrial Economics.
  5. Kjell Erik Lommerud & Frode Meland & Odd Rune Straume, 2008. "Mergers and capital flight in unionised oligopolies: Is there scope for a 'national champion' policy?," NIPE Working Papers, NIPE - Universidade do Minho 10/2008, NIPE - Universidade do Minho.
  6. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2010. "Ownership Efficiency and Tax Advantages: The Case of Private Equity Buyouts," Working Paper Series, Research Institute of Industrial Economics 841, Research Institute of Industrial Economics.
  7. Kjell Lommerud & Trond Olsen & Odd Straume, 2010. "Company Taxation and Merger Incentives in International Oligopoly: on International Policy Coordination with Strategic Trade," Journal of Industry, Competition and Trade, Springer, Springer, vol. 10(2), pages 161-186, June.

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