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International Taxation and Multinational Firm Location Decisions

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  • Barrios, Salvador
  • Huizinga, Harry
  • Laeven, Luc
  • Nicodème, Gaëtan

Abstract

Using a large international firm-level data set, we estimate separate effects of host and parent country taxation on the location decisions of multinational firms. Both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries. In fact, the impact of parent country taxation is estimated to be relatively large, possibly reflecting its international discriminatory nature. For the cross-section of multinational firms, we find that parent firms tend to be located in countries with a relatively low taxation of foreign-source income. Overall, our results show that parent-country taxation – despite the general possibility of deferral of taxation until income repatriation – is instrumental in shaping the structure of multinational enterprise.

Suggested Citation

  • Barrios, Salvador & Huizinga, Harry & Laeven, Luc & Nicodème, Gaëtan, 2008. "International Taxation and Multinational Firm Location Decisions," CEPR Discussion Papers 7047, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7047
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    References listed on IDEAS

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    More about this item

    Keywords

    corporate taxation; dividend withholding taxation; location decisions;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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