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Corporate Tax and Location Choice for Multinational Firms

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  • Lawless, Martina
  • McCoy, Daire
  • Morgenroth, Edgar
  • O'Toole, Conor

Abstract

The corporate tax rate and regime are policy instruments that are the subject of considerable attention for the role they play in attracting foreign multinationals making location decisions across countries. This paper examines the effects of corporate tax on these location decisions of newly established multinational subsidiaries across 26 European countries over an eight year period. We contribute to the existing literature by examining the effects of a non-linear response of firm location decisions to changes in the tax rate. We find that accounting for this non-linearity improves the performance of the model for all of the alternative measures of the tax rate. We also show that there are large variations in the sensitivity to tax rates across sectors and firm size groups. In particular, financial sector firms are more than twice as sensitive to changes in corporation tax rates relative to other sectors.

Suggested Citation

  • Lawless, Martina & McCoy, Daire & Morgenroth, Edgar & O'Toole, Conor, 2015. "Corporate Tax and Location Choice for Multinational Firms," MPRA Paper 64769, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:64769
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    2. Fischer, Leonie & Heckemeyer, Jost H. & Spengel, Christoph & Steinbrenner, Daniela, 2021. "Tax policies in a transition to a knowledge-based economy: The effective tax burden of companies and highly skilled labour," ZEW Discussion Papers 21-096, ZEW - Leibniz Centre for European Economic Research.
    3. Athiphat Muthitacharoen, 2023. "Location Choice And Tax Responsiveness Of Foreign Multinationals: Evidence From Asean Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 68(01), pages 217-242, March.
    4. Nicodeme Gaetan & Caiumi Antonella & Majewski Ina, 2018. "What Happened to CIT Collection? Solving the Rates-Revenues Puzzle," Taxation Papers 74, Directorate General Taxation and Customs Union, European Commission.
    5. Francesca Spinelli & Dorothée Rouzet & Hongyong Zhang, 2020. "Networks of foreign affiliates: Evidence from Japanese micro‐data," The World Economy, Wiley Blackwell, vol. 43(7), pages 1841-1867, July.
    6. Ronald B. Davies & Neill Killeen, 2018. "The Effect of Tax Treaties on Market Based Finance: Evidence using Firm-Level Data," Working Papers 201818, School of Economics, University College Dublin.
    7. Bergin, Adele & Curristan, Sarah & Farrell, Niall & Laurence, James & Lynch, Muireann Á. & McGinnity, Frances & McGuinness, Seamus & Russell, Helen & Smyth, Emer, 2022. "Scoping papers for research on ‘The economic and social opportunities from increased cooperation on the Shared Island'," Research Series, Economic and Social Research Institute (ESRI), number SUSTAT112.
    8. Vera, Ivan & Wicke, Birka & Lamers, Patrick & Cowie, Annette & Repo, Anna & Heukels, Bas & Zumpf, Colleen & Styles, David & Parish, Esther & Cherubini, Francesco & Berndes, Göran & Jager, Henriette & , 2022. "Land use for bioenergy: Synergies and trade-offs between sustainable development goals," Renewable and Sustainable Energy Reviews, Elsevier, vol. 161(C).
    9. Anatolijs Prohorovs, 2023. "Re-Export: Assessing the Impact of Re-Export Companies on Sectors and the Economy," JRFM, MDPI, vol. 16(2), pages 1-25, January.
    10. Ronald B. Davies & Neill Killeen, 2018. "Location decisions of non‐bank financial foreign direct investment: Firm‐level evidence from Europe," Review of International Economics, Wiley Blackwell, vol. 26(2), pages 378-403, May.
    11. Yan, Pu & Xiao, Chunwang & Xu, Li & Yu, Guirui & Li, Ang & Piao, Shilong & He, Nianpeng, 2020. "Biomass energy in China's terrestrial ecosystems: Insights into the nation's sustainable energy supply," Renewable and Sustainable Energy Reviews, Elsevier, vol. 127(C).
    12. Siedschlag, Iulia & McLoughlin, Robert & Daire De Hora, 2023. "The impact of the global tax reforms on Ireland’s corporate investment and the wider economy," Papers WP761, Economic and Social Research Institute (ESRI).
    13. Eichfelder, Sebastian & Kluska, Mike & Knaisch, Jonas & Selle, Juliane, 2021. "Senkung der Unternehmenssteuerlast versus Förderung von Investitionen: Was ist die bessere Strategie zur Förderung der Standortattraktivität Deutschlands?," arqus Discussion Papers in Quantitative Tax Research 266, arqus - Arbeitskreis Quantitative Steuerlehre.
    14. Siedschlag, Iulia & Yan, Weijie, 2021. "Enhancing the attractiveness of the all-island economy to high-value sectors," Research Series, Economic and Social Research Institute (ESRI), number RS133.
    15. Hoppe, Thomas & Schanz, Deborah & Sturm, Susann & Sureth, Caren & Voget, Johannes, 2020. "The relation between tax complexity and foreign direct investment: Evidence across countries," arqus Discussion Papers in Quantitative Tax Research 250, arqus - Arbeitskreis Quantitative Steuerlehre.

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    More about this item

    Keywords

    Corporation Tax; Location Choice; Multinational firms; FDI;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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