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The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments

Author

Listed:
  • Shafik Hebous
  • Martin Ruf
  • Alfons J. Weichenrieder

Abstract

In this study, we estimate the impacts of differences in international tax rates on the probability of choosing a location for an affiliate of a multinational firm. In particular, we distinguish between the tax sensitivity of Greenfield and M&A investments. Based on a novel firm-level dataset on German outbound FDI, we find evidence that location decisions of M&A investments are less sensitive to differences in tax rates than location decisions of Greenfield investments. According to our logit estimates, and after controlling for firm and country-specific characteristics, the tax elasticity for Greenfield investments is negative and in absolute value significantly larger than that associated with M&A investments. This finding is consistent with a (partial) capitalisation of taxes in the acquisition price when the FDI project takes the form of M&A.

Suggested Citation

  • Shafik Hebous & Martin Ruf & Alfons J. Weichenrieder, 2010. "The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments," CESifo Working Paper Series 3076, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3076
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp3076.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Devereux, Michael P. & Fuest, Clemens & Lockwood, Ben, 2015. "The taxation of foreign profits: A unified view," Journal of Public Economics, Elsevier, vol. 125(C), pages 83-97.
    2. Keller, Sara & Schanz, Deborah, 2013. "Measuring tax attractiveness across countries," arqus Discussion Papers in Quantitative Tax Research 143, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Shafik Hebous, 2014. "Money at the Docks of Tax Havens: A Guide," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 458-485, September.
    4. repec:spr:sptbec:978-3-642-36306-1 is not listed on IDEAS
    5. Federica Liberini, 2014. "Corporate Taxes and the Growth of the Firm," KOF Working papers 14-354, KOF Swiss Economic Institute, ETH Zurich.
    6. 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.
    7. Liberini, Federica, 2014. "Corporate Taxes and the Growth of the Firm," The Warwick Economics Research Paper Series (TWERPS) 1042, University of Warwick, Department of Economics.
    8. Bialek, Sylwia & Weichenrieder, Alfons J., 2015. "Do stringent environmental policies deter FDI? M&A versus Greenfi eld," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113179, Verein für Socialpolitik / German Economic Association.
    9. Wiji Arulampalam & Michael P. Devereux & Federica Liberini, 2012. "Taxes and the Location of Targets," Working Papers 1213, Oxford University Centre for Business Taxation.

    More about this item

    Keywords

    FDI; corporate taxation; location; M&A; Greenfield;

    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
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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