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The Taxation of Multinationals: Firm Level Evidence for Belgium

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  • Hylke Vandenbussche
  • Chang Tan

Abstract

This paper provides empirical evidence of a more favorable tax treatment for foreign multinationals compared to similar domestic Firms in a small open economy. Using treatment effects to control for self-selection of foreign firms into low tax firms, we find that foreign multinationals have substantially lower effective tax rates compared to domestic firms. In our estimations we also control for firm size, sector membership and business-cycle effects. A simple theoretical framework is used to explain our empirical findings and rests on the notion that multinational firms are in a better position to bargain for lower taxes with governments as a result of their "footloose" nature and outside location options.

Suggested Citation

  • Hylke Vandenbussche & Chang Tan, 2005. "The Taxation of Multinationals: Firm Level Evidence for Belgium," LICOS Discussion Papers 16005, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  • Handle: RePEc:lic:licosd:16005
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    File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp160.pdf
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    References listed on IDEAS

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    1. Boudewijn Janssen, 2005. "Corporate Effective Tax Rates in the Netherlands," De Economist, Springer, vol. 153(1), pages 47-66, December.
    2. Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February.
    3. Huizinga, Harry & Nicodeme, Gaetan, 2006. "Foreign ownership and corporate income taxation: An empirical evaluation," European Economic Review, Elsevier, vol. 50(5), pages 1223-1244, July.
    4. Shackelford, Douglas A. & Shevlin, Terry, 2001. "Empirical tax research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 321-387, September.
    5. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
    6. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    7. Nicodeme, Gaetan, 2001. "Computing effective corporate tax rates: comparisons and results," MPRA Paper 3808, University Library of Munich, Germany.
    8. Rachel Griffith & Stephen Redding & Helen Simpson, 2004. "Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab," Oxford Review of Economic Policy, Oxford University Press, vol. 20(3), pages 440-456, Autumn.
    9. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 2001. "Corporate Taxation, Multinational Enterprise and Economic Integration," CEPR Discussion Papers 2753, C.E.P.R. Discussion Papers.
    10. Zimmerman, Jerold L., 1983. "Taxes and firm size," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 119-149, April.
    11. Julie Collins & Douglas Shackelford, 1995. "Corporate domicile and average effective tax rates: The cases of Canada, Japan, the United Kingdom, and the United States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(1), pages 55-83, February.
    12. Thomas A. Gresik, 2001. "The Taxing Task of Taxing Transnationals," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 800-838, September.
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    Cited by:

    1. Stamatopoulos, Ioannis & Hadjidema, Stamatina & Eleftheriou, Konstantinos, 2016. "Explaining Corporate Effective Tax Rates Before and During the Financial Crisis: Evidence from Greece," MPRA Paper 73787, University Library of Munich, Germany.

    More about this item

    Keywords

    _rm level data; multinationals; corporate taxation; self-selection;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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