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Foreign (in)direct investment and corporate taxation

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  • Wamser, Georg

Abstract

This paper investigates the role of corporate taxation with respect to a multinational's investment decision, in which the multinational can pursue either a direct or an indirect investment strategy. The latter involves at least three corporate entities and opens up enhanced opportunities for international tax planning. The existence of preferential tax treatment for conduit or intermediate corporate entities presumably changes the role of corporate taxation in destination countries, because it supports multinationals in avoiding taxes. The empirical findings of this study are consistent with theoretical predictions and suggest that tax effects differ, depending on the investment regime. The endogeneity of the structural choice - direct versus indirect - is taken into account by a switching regression approach. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2008,15.

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Date of creation: 2008
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Handle: RePEc:zbw:bubdp1:7555

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Keywords: multinational company; business taxes; firm-level data; switching regression;

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References

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  1. Alfons J. Weichenrieder & Jack Mintz, 2008. "What determines the use of holding companies and ownership chains?," Working Papers, Oxford University Centre for Business Taxation 0803, Oxford University Centre for Business Taxation.
  2. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer, Springer, vol. 10(6), pages 673-93, November.
  3. Lee, Lung-Fei, 1978. "Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 415-33, June.
  4. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 115-132, July.
  5. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
  6. Alfons Weichenrieder, 1996. "Fighting international tax avoidance," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 17(1), pages 37-58, February.
  7. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 18(1), pages 5-46, January.
  8. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  9. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 69-85, January.
  10. Francis Vella, 1998. "Estimating Models with Sample Selection Bias: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 127-169.
  11. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(2), pages 169-189, Spring.
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Cited by:
  1. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2014. "Panel Data Gravity Models of International Trade," CESifo Working Paper Series 4616, CESifo Group Munich.
  2. Peter Egger & Valeria Merlo & Georg Wamser, 2014. "Unobserved Tax Avoidance and the Tax Elasticity of FDI," CESifo Working Paper Series 4921, CESifo Group Munich.
  3. Gumpert, Anna & Hines, James R. & Schnitzer, Monika, 2011. "The use of tax havens in exemption regimes," Discussion Paper Series 1: Economic Studies 2011,30, Deutsche Bundesbank, Research Centre.
  4. Thiess Buettner & Michael Overesch & Georg Wamser, 2014. "Anti Profit-Shifting Rules and Foreign Direct Investment," CESifo Working Paper Series 4710, CESifo Group Munich.
  5. Daniel Dreßler & Michael Overesch, 2013. "Investment impact of tax loss treatment—empirical insights from a panel of multinationals," International Tax and Public Finance, Springer, Springer, vol. 20(3), pages 513-543, June.

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