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The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata

  • Davies, Ronald B.

    ()

    (University of Oregon)

  • Norbäck, Pehr-Johan

    ()

    (Research Institute of Industrial Economics (IFN))

  • Tekin-Koru, Ayça

    ()

    (Oregon State University)

This paper uses affiliate level data from Swedish multinationals to examine the impact of tax treaties on both overall affiliate sales and the composition of those sales. In line with previous results, we find little evidence for an effect of treaties on the level of total sales. We do, however, find that a tax treaty increases the probability of investment by a firm in a given country. In addition, we find that a treaty reduces exports to the parent but increases imports of intermediate inputs from the parent. This is consistent with treaties increasing the effective host tax. This suggests that tax treaties impact the behavior of multinationals along some dimensions but not along others.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 833.

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Length: 45 pages
Date of creation: 19 May 2010
Date of revision:
Handle: RePEc:hhs:iuiwop:0833
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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  1. Rodolphe Desbordes & Vincent Vicard, 2007. "Foreign direct investment and bilateral investment treaties, an international political perspective," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00176051, HAL.
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  4. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  5. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
  6. Bruce A. Blonigen & Ronald B. Davies, 2002. "Do Bilateral Tax Treaties Promote Foreign Direct Investment?," NBER Working Papers 8834, National Bureau of Economic Research, Inc.
  7. repec:hal:journl:halshs-00176051 is not listed on IDEAS
  8. Kelly Edmiston & Shannon Mudd & Neven Valev, 2003. "Tax Structures and FDI: The Deterrent Effects of Complexity and Uncertainty," Fiscal Studies, Institute for Fiscal Studies, vol. 24(3), pages 341-359, September.
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  12. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September.
  13. Bruce A. Blonigen & Ronald B. Davies & Glen R. Waddell & Helen T. Naughton, 2004. "FDI in Space: Spatial Autoregressive Relationships in Foreign Direct Investment," NBER Working Papers 10939, National Bureau of Economic Research, Inc.
  14. Rosanne Altshuler & T. Scott Newlon & Harry Grubert, 2002. "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?," Departmental Working Papers 199806, Rutgers University, Department of Economics.
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  16. di Giovanni, Julian, 2005. "What drives capital flows? The case of cross-border M&A activity and financial deepening," Journal of International Economics, Elsevier, vol. 65(1), pages 127-149, January.
  17. Daniel Millimet & Abdullah Kumas, 2007. "Reassessing the Effects of Bilateral Tax Treaties on US FDI Activity," Departmental Working Papers 0704, Southern Methodist University, Department of Economics.
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  19. Céline Azémar & Rodolphe Desbordes & Jean-Louis Mucchielli, 2004. "Do tax sparing agreements contribute to the attraction of FDI in developing countries ?," Cahiers de la Maison des Sciences Economiques bla04047, Université Panthéon-Sorbonne (Paris 1).
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  22. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
  23. Thomas A. Gresik, 2001. "The Taxing Task of Taxing Transnationals," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 800-838, September.
  24. Ronald B. Davies, 2003. "Tax Treaties, Renegotiations, and Foreign Direct Investment," University of Oregon Economics Department Working Papers 2003-14, University of Oregon Economics Department, revised 10 Jun 2003.
  25. James R. Hines Jr., 1992. "Credit and Deferral as International Investment Incentives," NBER Working Papers 4191, National Bureau of Economic Research, Inc.
  26. Vibhas Madan, 2000. "Transfer prices and the structure of intra-firm trade," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 53-68, February.
  27. Ronald B. Davies, 2004. "Tax Treaties and Foreign Direct Investment: Potential versus Performance," International Tax and Public Finance, Springer, vol. 11(6), pages 775-802, November.
  28. Peter Egger & Mario Larch & Michael Pfaffermayr & Hannes Winner, 2006. "The impact of endogenous tax treaties on foreign direct investment: theory and evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 901-931, August.
  29. Norback, Pehr-Johan, 2001. "Multinational firms, technology and location," Journal of International Economics, Elsevier, vol. 54(2), pages 449-469, August.
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