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International corporate taxation and US multinationals' behaviour: an integrated approach

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Author Info
Céline Azémar
Abstract

Using data from the International Revenue Service, this paper explores the effects of corporate taxation on U.S. capital invested abroad and on tax planning practices (dividend payments, income shifting, and passive investment). The econometric analysis first indicates that investment is strongly influenced by average tax rates, with a magnified impact for particularly low-tax rates implying that the attractiveness of low-tax countries is not weakened by anti-deferral rules and cross-crediting limitations. Further explorations suggest that firms report higher profit and are less likely to repatriate dividends when they are located in low-tax jurisdictions. Firms also report higher Subpart F income in countries in which they shift their profit, suggesting that cross-crediting provides an incentive to shift passive income in low-tax countries and that passive investment can be an alternative strategy to minimize taxes when active investment opportunities are lacking. Finally, the paper estimates the role of effective transfer pricing regulation on income shifting activities using the quality of host countries' law enforcement. It appears that low degrees of law enforcement are associated with higher income-shifting.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2009_03.

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Date of creation: Aug 2008
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Handle: RePEc:gla:glaewp:2009_03

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Related research
Keywords: Uncertainty; Multi-Prior Beliefs; Suspension Schemes; Panic-Driven Bank Runs.;

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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  1. Rosanne Altshuler & Harry Grubert & T. Scott Newlon, 1998. "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?," NBER Working Papers 6383, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
    Other versions:
  3. Chan, K. Hung & Chow, Lynne, 1997. "An empirical study of tax audits in China on international transfer pricing," Journal of Accounting and Economics, Elsevier, vol. 23(1), pages 83-112, May. [Downloadable!] (restricted)
  4. Ekholm, Karolina & Forslid, Rikard & Markusen, James R., 2003. "Export-Platform Foreign Direct Investment," CEPR Discussion Papers 3823, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. James R. Hines, Jr. & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Kaufmann, Daniel & Kraay, Aart, 2002. "Growth without governance," Policy Research Working Paper Series 2928, The World Bank. [Downloadable!]
  7. Céline Azémar & Rodolphe Desbordes & Jean-Louis Mucchielli, 2007. "Do tax sparing agreements contribute to the attraction of FDI in developing countries?," International Tax and Public Finance, Springer, vol. 14(5), pages 543-562, October. [Downloadable!] (restricted)
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  8. Paul Collier & Jan Willem Gunning, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 64-111, March. [Downloadable!] (restricted)
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  9. Robert E. Lipsey, 2007. "Defining and Measuring the Location of FDI Output," NBER Working Papers 12996, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July. [Downloadable!] (restricted)
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  11. Kant, Chander, 1990. "Multinational firms and government revenues," Journal of Public Economics, Elsevier, vol. 42(2), pages 135-147, July. [Downloadable!] (restricted)
  12. Céline Azémar & Paolo Gregory Corcos, . "Multinational Firms' Heterogeneity in Tax Responsiveness: the Role of Transfer Pricing," Working Papers 2008_04, Department of Economics, University of Glasgow, revised Feb 2008. [Downloadable!]
  13. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc. [Downloadable!]
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  14. de Mooij, Ruud A. & Ederveen, Sjef, 2001. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  15. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September. [Downloadable!] (restricted)
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