IDEAS home Printed from https://ideas.repec.org/a/eaa/aeinde/v14y2014i1_3.html
   My bibliography  Save this article

Effects of Corporate Taxation and Bilateral Tax Treaties on European Multinationals’ Investment, 2005-2009. A Multi-Country Analysis

Author

Listed:
  • Mário MARQUES
  • Carlos PINHO

Abstract

This paper analyzes the effects of corporate tax rates and tax treaties on multinationals foreign activity. First, it examines whether host country corporate tax rate and tax treaties influence the probability of a multinational to choose a particular country to locate a new foreign subsidiary. Second, it evaluates to what extent the investment level is determined by taxation. We use data of new foreign subsidiaries located in Europe and take a two-step estimation. The estimated semi-elasticity of effective tax rate is of -1.516. At the intensive margin of investment findings indicate significant effects of both tax treaties and corporate tax rates on the number of employees.

Suggested Citation

  • Mário MARQUES & Carlos PINHO, 2014. "Effects of Corporate Taxation and Bilateral Tax Treaties on European Multinationals’ Investment, 2005-2009. A Multi-Country Analysis," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 14(1), pages 33-44.
  • Handle: RePEc:eaa:aeinde:v:14:y:2014:i:1_3
    as

    Download full text from publisher

    File URL: http://www.usc.es/economet/reviews/aeid1413.pdf
    Download Restriction: No.
    ---><---

    References listed on IDEAS

    as
    1. Lars P. Feld & Jost H. Heckemeyer, 2011. "Fdi And Taxation: A Meta‐Study," Journal of Economic Surveys, Wiley Blackwell, vol. 25(2), pages 233-272, April.
    2. 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.
    3. Peter Egger & Valeria Merlo, 2011. "Statutory Corporate Tax Rates and Double-Taxation Treaties as Determinants of Multinational Firm Activity," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(2), pages 145-170, June.
    4. Barrios, Salvador & Huizinga, Harry & Laeven, Luc & Nicodème, Gaëtan, 2012. "International taxation and multinational firm location decisions," Journal of Public Economics, Elsevier, vol. 96(11), pages 946-958.
    5. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June.
    6. 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.
    7. Davies, Ronald B., 2003. "Tax Treaties, Renegotiations, and Foreign Direct Investment," Economic Analysis and Policy, Elsevier, vol. 33(2), pages 251-273, September.
    8. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    9. Abdullah Kumas & Daniel L. Millimet, 2018. "Reassessing the effects of bilateral tax treaties on US FDI activity," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(3), pages 451-470, July.
    10. Frias, I. & Iglesias, A. & Vazquez, E., 2005. "The Effects of the Enlargement of the EU: The Mobility of factors of Production," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 5(1).
    11. Fabian Barthel & Matthias Busse & Eric Neumayer, 2010. "The Impact Of Double Taxation Treaties On Foreign Direct Investment: Evidence From Large Dyadic Panel Data," Contemporary Economic Policy, Western Economic Association International, vol. 28(3), pages 366-377, July.
    12. Thiess Buettner & Martin Ruf, 2007. "Tax incentives and the location of FDI: Evidence from a panel of German multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(2), pages 151-164, April.
    13. Eric Neumayer, 2007. "Do double taxation treaties increase foreign direct investment to developing countries?," Journal of Development Studies, Taylor & Francis Journals, vol. 43(8), pages 1501-1519.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Harendt, Christoph & Dreßler, Daniel & Overesch, Michael, 2016. "The Impact of Tax Treaties and Repatriation Taxes on FDI Revisited," VfS Annual Conference 2016 (Augsburg): Demographic Change 145588, Verein für Socialpolitik / German Economic Association.
    2. Peter Egger & Michael Stimmelmayr, 2017. "Taxation and the Multinational Firm," CESifo Working Paper Series 6384, CESifo.
    3. Overesch Michael, 2016. "Steuervermeidung multinationaler Unternehmen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(2), pages 129-143, July.
    4. Lobanov, Mikhail (Лобанов, Михаил) & Zvezdanovic-Lobanova, Elena (Звездович-Лобанова, Елена), 2015. "Double Taxation Treaties as a Factor of Cross-border Investment Activity [Соглашения Об Избежании Двойного Налогообложения Как Фактор Трансграничной Инвестиционной Активности]," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 92-111, February.
    5. 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).
    6. Merz, Julia & Overesch, Michael & Wamser, Georg, 2017. "The location of financial sector FDI: Tax and regulation policy," Journal of Banking & Finance, Elsevier, vol. 78(C), pages 14-26.
    7. Ronald B. Davies & Iulia Siedschlag & Zuzanna Studnicka, 2021. "The impact of taxes on the extensive and intensive margins of FDI," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(2), pages 434-464, April.
    8. Arulampalam, Wiji & Devereux, Michael P. & Liberini, Federica, 2019. "Taxes and the location of targets," Journal of Public Economics, Elsevier, vol. 176(C), pages 161-178.
    9. Egger, Peter H. & Merlo, Valeria & Wamser, Georg, 2014. "Unobserved tax avoidance and the tax elasticity of FDI," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 1-18.
    10. Julia Merz & Michael Overesch & Georg Wamser, 2015. "Tax vs. Regulation Policy and the Location of Financial Sector FDI," CESifo Working Paper Series 5500, CESifo.
    11. Keller, Sara & Schanz, Deborah, 2013. "Tax attractiveness and the location of German-controlled subsidiaries," arqus Discussion Papers in Quantitative Tax Research 142, arqus - Arbeitskreis Quantitative Steuerlehre.
    12. Keller, Sara & Schanz, Deborah, 2013. "Measuring tax attractiveness across countries," arqus Discussion Papers in Quantitative Tax Research 143, arqus - Arbeitskreis Quantitative Steuerlehre.
    13. Gaëtan Nicodème, 2008. "Corporate Income Tax and Economic Distortions," Working Papers CEB 08-033.RS, ULB -- Universite Libre de Bruxelles.
    14. Abdullah Kumas & Daniel L. Millimet, 2018. "Reassessing the effects of bilateral tax treaties on US FDI activity," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(3), pages 451-470, July.
    15. Sunghoon Hong, 2018. "Tax treaties and foreign direct investment: a network approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1277-1320, October.
    16. Martin Hearson, 2017. "What makes countries negotiate away their corporate tax base?," WIDER Working Paper Series wp-2017-122, World Institute for Development Economic Research (UNU-WIDER).
    17. Martina Lawless & Daire McCoy & Edgar L. W. Morgenroth & Conor M. O”Toole, 2018. "Corporate tax and location choice for multinational firms," Applied Economics, Taylor & Francis Journals, vol. 50(26), pages 2920-2931, June.
    18. 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.
    19. Kunka Petkova & Andrzej Stasio & Martin Zagler, 2020. "On the relevance of double tax treaties," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 575-605, June.
    20. Liberini, Federica, 2014. "Corporate Taxes and the Growth of the Firm," Economic Research Papers 270243, University of Warwick - Department of Economics.

    More about this item

    Keywords

    foreign investment; corporate taxation; tax treaties;
    All these keywords.

    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
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eaa:aeinde:v:14:y:2014:i:1_3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.usc.es/economet/eaa.htm .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: M. Carmen Guisan (email available below). General contact details of provider: http://www.usc.es/economet/eaa.htm .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.