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Tax incentives and the location of FDI: Evidence from a panel of German multinationals

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  • Thiess Buettner
  • Martin Ruf

Abstract

Using a firm-level panel data set this paper investigates the impact of taxation on the decision of German multinationals to hold or establish a subsidiary in other European countries or abroad. Taking account of unobserved local characteristics as well as firm-specific preferences for potential locations, the results confirm significant effects of tax incentives, market size, and of labor cost on cross-border location decisions. In accordance with Devereux and Griffith (1998) we find that the marginal effective tax rate has no predictive power for location decisions. However, the results indicate a considerably weaker predictive power of the effective average tax rate as compared to the statutory tax rate. Copyright Springer Science + Business Media, LLC 2007

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  • 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.
    • Handle: RePEc:kap:itaxpf:v:14:y:2007:i:2:p:151-164
    DOI: 10.1007/s10797-006-8721-5
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    More about this item

    Keywords

    Location; FDI; Corporate taxation; Firm-level data; Fixed-effects logit;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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