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Asymmetric FDI and Tax-Treaty Bargaining: Theory and Evidence

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  • Chisik, Richard

    (Florida International University)

  • Ronald B. Davies

    (University of Oregon)

Abstract

Tax treaties are often viewed as a mechanism for eliminating tax competition, however this approach ignores the need for bargaining over the treatyís terms. This paper focuses on how bargaining can affect the withholding taxes set under the treaty. In a simple framework, we develop hypotheses about patterns in treaty tax rates. A key determinant for these patterns is the relative size of bilateral foreign direct investment (FDI) activity. In plausible situations, more asymmetric countries will negotiate treaties with higher tax rates. This theory is then tested using 1997 data from U.S. bilateral tax treaties. Overall, the data supports the prediction that greater asymmetric FDI activity increases the negotiated tax rates.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 48.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:48

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Cited by:
  1. Luca Salvadori & José María Durán-Cabré & Alejandro Esteller-Moré, 2013. "Empirical Evidence On Tax Information Sharing Among Sub-Central Administrations," ERSA conference papers ersa13p461, European Regional Science Association.
  2. Blanchard, Emily J., 2010. "Reevaluating the role of trade agreements: Does investment globalization make the WTO obsolete?," Journal of International Economics, Elsevier, vol. 82(1), pages 63-72, September.
  3. Davies, Ronald B., 2003. "Tax Treaties, Renegotiations, and Foreign Direct Investment," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 33(2), pages 251-273, September.
  4. Eric Neumayer, 2007. "Do double taxation treaties increase foreign direct investment to developing countries?," LSE Research Online Documents on Economics 3054, London School of Economics and Political Science, LSE Library.
  5. May Elsayyad, 2012. "Bargaining over Tax Information Exchange," Working Papers bargaining_over_tax_infor, Max Planck Institute for Tax Law and Public Finance.
  6. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
  7. May Elsayyad & Kai A. Konrad, 2011. "Fighting Multiple Tax Havens," Working Papers fighting_multiple_tax_hav, Max Planck Institute for Tax Law and Public Finance.
  8. Rixen, Thomas, 2008. "The institutional design of international double taxation avoidance," Discussion Papers, Research Unit: Global Governance SP IV 2008-302, Social Science Research Center Berlin (WZB).
  9. Bruce A. Blonigen & Lindsay Oldenski & Nicholas Sly, 2014. "The Differential Effects of Bilateral Tax Treaties," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 1-18, May.
  10. Arjan Lejour, 2014. "The Foreign Investment Effects of Tax Treaties," CPB Discussion Paper 265, CPB Netherlands Bureau for Economic Policy Analysis.
  11. Rixen, Thomas & Rohlfing, Ingo, 2005. "The Political Economy of Bilateralism and Multilateralism: Institutional Choice in Trade and Taxation," MPRA Paper 325, University Library of Munich, Germany, revised 2005.
  12. Rixen, Thomas & Rohlfing, Ingo, 2005. "The political economy of bilateralism and multilateralism: Institutional choice in international trade and taxation," TranState Working Papers 31, University of Bremen, Collaborative Research Center 597: Transformations of the State.
  13. Daniel Millimet & Abdullah Kumas, 2007. "Reassessing the Effects of Bilateral Tax Treaties on US FDI Activity," Departmental Working Papers 0704, Southern Methodist University, Department of Economics.
  14. 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.

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