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Effective Labor Taxation and the International Location of Headquarters

  • Strecker, Nora
  • Egger, Peter
  • Radulescu, Doina

Profit taxes are widely acknowledged to influence the location of firms' headquarters. This paper sheds light on the role of aspects of labor taxation for the international location of headquarters. We construct a unique data set of effective labor taxes in 120 countries and use data on the location of 35,206 firms to analyze the impact of labor income tax rates, the progressivity of the income tax schedule, and social security contributions on firms' decisions where to locate their headquarters. The findings suggest that both a higher progressivity of the tax system and higher (employee- and employer-borne) social security contributions negatively influence a country's attractiveness for headquarters location. A one percentage point increase in a country's average labor income tax rate reduces its probability to be chosen as the headquarters location for the average firm by about 1.2 percentage points.

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File URL: http://econstor.eu/bitstream/10419/62086/1/VfS_2012_pid_283.pdf
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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century with number 62086.

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Date of creation: 2012
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Handle: RePEc:zbw:vfsc12:62086
Contact details of provider: Web page: http://www.socialpolitik.org/
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