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Where Does Multinational Investment Go with Territorial Taxation? Evidence from the United Kingdom

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  • Li Liu

Abstract

In 2009, the United Kingdom changed from a worldwide to a territorial tax system, abolishing dividend taxes on foreign repatriation from many low-tax countries. This paper assesses the causal effect of territorial taxation on real investments, using a unique dataset for multinational affiliates in 27 European countries and employing the difference-in-differences approach. It finds that the territorial reform has increased the investment rate of UK multinationals by 16.7 percentage points in low-tax countries. In the absence of any significant investment reduction elsewhere, the findings represent a likely increase in total outbound investment by UK multinationals.

Suggested Citation

  • Li Liu, 2020. "Where Does Multinational Investment Go with Territorial Taxation? Evidence from the United Kingdom," American Economic Journal: Economic Policy, American Economic Association, vol. 12(1), pages 325-358, February.
  • Handle: RePEc:aea:aejpol:v:12:y:2020:i:1:p:325-58
    DOI: 10.1257/pol.20180592
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    Cited by:

    1. Ruud Mooij & Li Liu, 2020. "At a Cost: The Real Effects of Transfer Pricing Regulations," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(1), pages 268-306, March.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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