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Statutory Corporate Tax Rates and Double-Taxation Treaties as Determinants of Multinational Firm Activity

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  • Peter Egger
  • Valeria Merlo

Abstract

This paper analyzes the influence of statutory corporate tax rates on profits and of double-taxation treaties (DTTs) on multinational firm (MNE) activity at the micro level. It provides an assessment of the effects of these profit tax instruments on the extensive and the intensive margin of activity. In particular, we estimate two-part quasi-maximum-likelihood models using panel data on the foreign activity of German MNEs in the decade 1996-2005 and find that statutory tax rates affect MNE activity negatively both at the extensive and at the intensive margin of investment, while DTTs primarily induce a positive effect at the extensive margin.

Suggested Citation

  • 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.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(291106)67:2_145:sctrad_2.0.tx_2-m
    DOI: 10.1628/001522108X588754
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    References listed on IDEAS

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    1. Buettner, Thiess & Wamser, Georg, 2013. "Internal Debt and Multinational Profit Shifting: Empirical Evidence From Firm-Level Panel Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 63-95, March.
    2. Schreiber, Ulrich & Overesch, Michael & Büttner, Thiess & Wamser, Georg, 2006. "The Impact of Thin-Capitalization Rules on Multinationals? Financing and Investment Decisions," ZEW Discussion Papers 06-068, ZEW - Leibniz Centre for European Economic Research.
    3. Thiess Buettner & Michael Overesch & Georg Wamser, 2011. "Tax Status and Tax Response Heterogeneity of Multinationals' Debt Finance," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(2), pages 103-122, June.
    4. Johannes Becker & Clemens Fuest, 2010. "Taxing Foreign Profits With International Mergers And Acquisitions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 171-186, February.
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    Citations

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    Cited by:

    1. 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.
    2. Dominik Gajewski, 2013. "The Holding Company as an Instrument of Companies’ Tax-Financial Policy Formation," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(1), March.
    3. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2014. "Panel Data Gravity Models of International Trade," CESifo Working Paper Series 4616, CESifo.
    4. 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.
    5. 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.
    6. Peter Egger & Michael Stimmelmayr, 2017. "Taxation and the Multinational Firm," CESifo Working Paper Series 6384, CESifo.
    7. Dominik Gajewski, 2012. "Chosen Tax-Related and Economic Aspects of Choosing the Method of Equity Financing in Relation to Thin Capitalisation in the Countries of OECD," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 6(1), March.
    8. 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).
    9. Simon Behrendt & Georg Wamser, 2018. "Tax-Response Heterogeneity and the Effects of Double Taxation Treaties on the Location Choices of Multinational Firms," CESifo Working Paper Series 6869, CESifo.
    10. Overesch Michael, 2016. "Steuervermeidung multinationaler Unternehmen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(2), pages 129-143, July.
    11. 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.
    12. 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.

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    More about this item

    Keywords

    profit taxation; double-taxation treaties; multinational firms; pseudo-maximum-likelihood models;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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