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

Listed author(s):
  • Davies, Ronald
  • Norback, Pehr-Johan
  • Tekin-Koru, Ayca

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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File URL: https://mpra.ub.uni-muenchen.de/6031/1/MPRA_paper_6031.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6031.

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Date of creation: 2007
Handle: RePEc:pra:mprapa:6031
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  1. Norback, Pehr-Johan, 2001. "Multinational firms, technology and location," Journal of International Economics, Elsevier, vol. 54(2), pages 449-469, August.
  2. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
  3. Ronald B. Davies, 2004. "Tax Treaties and Foreign Direct Investment: Potential versus Performance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(6), pages 775-802, November.
  4. Céline Azemar & Rodolphe Desbordes & Jean-Louis Mucchielli, 2007. "Do tax sparing agreements contribute to the attraction of FDI in developing countries?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00310534, HAL.
  5. Bruce A. Blonigen & Ronald B. Davies, 2001. "The Effects of Bilateral Tax Treaties on U.S. FDI Activity," University of Oregon Economics Department Working Papers 2001-14, University of Oregon Economics Department, revised 01 Jan 2001.
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  8. Karolina Ekholm & Rikard Forslid & James Markusen, 2003. "Export-Platform Foreign Direct Investment," NBER Working Papers 9517, National Bureau of Economic Research, Inc.
  9. Henry Louie & Donald Rousslang, 2008. "Host-country governance, tax treaties and US direct investment abroad," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(3), pages 256-273, June.
  10. 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.
  11. Clausing, Kimberly A., 2003. "Tax-motivated transfer pricing and US intrafirm trade prices," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2207-2223, September.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
  16. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2005. "Estimating Models of Complex FDI: Are There Third-Country Effects?," Center for Policy Research Working Papers 73, Center for Policy Research, Maxwell School, Syracuse University.
  17. James R. Hines Jr., 1992. "Credit and Deferral as International Investment Incentives," NBER Working Papers 4191, National Bureau of Economic Research, Inc.
  18. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier.
  19. Keen, M. & Ligthart, J.E., 2004. "Incentives and Information Exchange in International Taxation," Discussion Paper 2004-54, Tilburg University, Center for Economic Research.
  20. Janeba, Eckhard, 1996. "Foreign direct investment under oligopoly: Profit shifting or profit capturing?," Journal of Public Economics, Elsevier, vol. 60(3), pages 423-445, June.
  21. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  22. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
  23. 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.
  24. Rosanne Altshuler & Harry Grubert & T. Scott Newlon, 1998. "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?," NBER Working Papers 6383, National Bureau of Economic Research, Inc.
  25. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July.
  26. Blonigen, Bruce A, 1997. "Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment," American Economic Review, American Economic Association, vol. 87(3), pages 447-465, June.
  27. Rodolphe Desbordes & Vincent Vicard, 2007. "Foreign direct investment and bilateral investment treaties, an international political perspective," Post-Print halshs-00176051, HAL.
  28. 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.
  29. Thomas A. Gresik, 2001. "The Taxing Task of Taxing Transnationals," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 800-838, September.
  30. 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.
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