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

  • Shafik Hebous
  • Martin Ruf
  • Alfons Weichenrieder

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.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3076.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3076
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