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The Differential Effects of Bilateral Tax Treaties

Author

Listed:
  • Bruce A. Blonigen
  • Lindsay Oldenski
  • Nicholas Sly

Abstract

Bilateral tax treaties (BTTs) are intended to promote foreign direct investment through double-taxation relief. Using BEA firm-level data, we find a positive effect of BTTs on FDI, which is larger for firms that use differentiated inputs. BTTs allow multinational firms to request assistance from treaty partners' governments if they have a grievance about how tax liabilities are determined. These provisions disproportionately benefit firms that use inputs for which an arm's-length price is difficult to observe, since allocation of earnings across countries is more complex. We find differential BTT effects for both sales by existing affiliates and entry of new affiliates.

Suggested Citation

  • 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.
  • Handle: RePEc:aea:aejpol:v:6:y:2014:i:2:p:1-18
    Note: DOI: 10.1257/pol.6.2.1
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    References listed on IDEAS

    as
    1. Ronald B. Davies & Pehr-Johan Norbäck & Ayça Tekin-Koru, 2009. "The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata," The World Economy, Wiley Blackwell, vol. 32(1), pages 77-110, January.
    2. Chisik, Richard & Davies, Ronald B., 2004. "Asymmetric FDI and tax-treaty bargaining: theory and evidence," Journal of Public Economics, Elsevier, vol. 88(6), pages 1119-1148, June.
    3. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2004. "Entry and Productivity Growth: Evidence from Microlevel Panel Data," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 265-276, 04/05.
    4. Henry Louie & Donald Rousslang, 2008. "Host-country governance, tax treaties and US direct investment abroad," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(3), pages 256-273, June.
    5. Peter Egger & Mario Larch & Michael Pfaffermayr & Hannes Winner, 2006. "The impact of endogenous tax treaties on foreign direct investment: theory and evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 901-931, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kovak, Brian K. & Oldenski, Lindsay & Sly, Nicholas, 2017. "The Labor Market Effects of Offshoring by U.S. Multinational Firms: Evidence from Changes in Global Tax Policies," Research Working Paper RWP 17-12, Federal Reserve Bank of Kansas City.
    2. Miethe, Jakob & Menkhoff, Lukas, 2017. "Dirty money coming home: Capital flows into and out of tax havens," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168082, Verein für Socialpolitik / German Economic Association.
    3. Anca Cristea, 2015. "The effect of communication costs on trade in headquarter services," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(2), pages 255-289, May.
    4. repec:spr:jecfin:v:42:y:2018:i:3:d:10.1007_s12197-017-9400-3 is not listed on IDEAS
    5. Weichenrieder, Alfons J. & Xu, Fangying, 2015. "Are tax havens good? Implications of the crackdown on secrecy," SAFE Working Paper Series 111, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    6. Hearson, Martin, 2018. "When do developing countries negotiate away their corporate tax base?," LSE Research Online Documents on Economics 87762, London School of Economics and Political Science, LSE Library.
    7. Sly, Nicholas & Weber, Caroline, 2015. "Global tax policy and the synchronization of business cycles," Research Working Paper RWP 15-7, Federal Reserve Bank of Kansas City.
    8. Braun, Julia & Weichenrieder, Alfons, 2015. "Does exchange of information between tax authorities influence multinationals' use of tax havens?," ZEW Discussion Papers 15-015, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Peter Egger & Michael Stimmelmayr, 2017. "Taxation and the Multinational Firm," CESifo Working Paper Series 6384, CESifo Group Munich.
    10. repec:taf:oabmxx:v:3:y:2016:i:1:p:1248644 is not listed on IDEAS
    11. Nicholas Sly & Lindsay Oldenski & Brian Kovak, 2017. "The Labor Market Effects of Offshoring by U.S. Multinational Firms: Evidence from Changes in Global Tax Policies," 2017 Meeting Papers 535, Society for Economic Dynamics.
    12. Martin Hearson, 2017. "Political role models, child marriage, and women’s autonomy over marriage in India," WIDER Working Paper Series 122, World Institute for Development Economic Research (UNU-WIDER).
    13. Gary Clyde Hufbauer & Euijin Jung & Tyler Moran & Martian Vieiro, 2015. "The OECD's "Action Plan" to Raise Taxes on Multinational Corporations," Working Paper Series WP15-14, Peterson Institute for International Economics.
    14. repec:bla:reviec:v:25:y:2017:i:2:p:292-319 is not listed on IDEAS
    15. Overesch Michael, 2016. "Steuervermeidung multinationaler Unternehmen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(2), pages 129-143, July.
    16. Harendt, Christoph & Dreßler, Daniel & Overesch, Michael, 2016. "The Impact of Tax Treaties and Repatriation Taxes on FDI Revisited," Annual Conference 2016 (Augsburg): Demographic Change 145588, Verein für Socialpolitik / German Economic Association.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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