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International Tax Spillovers and Tangible Investment, with Implications for the GlobalMinimum Tax

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  • Keen,Michael
  • Liu,Li-Gang
  • Pallan,Hayley Marie

Abstract

This paper articulates and, using newly-assembled data, explores how international taxationaffects aggregate tangible cross-border investment.Spillovers from statutory tax rates abroad seem: As sizable as effects from the host’s rate; larger than previousconsensus values (attributed to a systematic bias from FDI data); and consistent with ‘implicit’ profit shiftingthrough real investment (rather than ‘paper’ profit shifting). Contrary to much policy discussion, the resultsalso imply that: Host countries’ marginal effective tax rates have at best a weak effect on real investment; thoseelsewhere have none; and, applied to the prospective global minimum tax, inward tangible investment in most samplecountries will increase.

Suggested Citation

  • Keen,Michael & Liu,Li-Gang & Pallan,Hayley Marie, 2023. "International Tax Spillovers and Tangible Investment, with Implications for the GlobalMinimum Tax," Policy Research Working Paper Series 10427, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10427
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    1. Antonio Coppola & Matteo Maggiori & Brent Neiman & Jesse Schreger, 2021. "Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing and Tax Havens," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(3), pages 1499-1556.
    2. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 673-693, November.
    3. Kimberly A. Clausing, 2020. "Profit Shifting before and after the Tax Cuts and Jobs Act," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(4), pages 1233-1266, December.
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    2. Hebous, Shafik & Keen, Michael, 2023. "Pareto-improving minimum corporate taxation," Journal of Public Economics, Elsevier, vol. 225(C).

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