Corporate Taxation and Multinational Activity
Ifo Institute for Economic Research - International Trade and Foreign Direct Investment; Ludwig-Maximilians University of Munich; CESifo (Center for Economic Studies and Ifo Institute for Economic Research
University of Bayreuth; Oxford University Centre for Business Taxation; University of Innsbruck
University of Innsbruck - Department of Economics; Austrian Institute of Economic Research
University of Salzburg - Department of Economics and Social Sciences; Austrian Institute of Economic Research (WIFO); University of Oxford - Oxford University Centre for Business Taxation; University of Innsbruck - Department of Economics & Statistics
CESifo Working Paper Series No. 1773
This paper assesses the impact of corporate taxation on multinational activity. A numerically solvable general equilibrium model of trade and multinational firms is used to incorporate the following components of corporate taxation: parent and host country statutory corporate tax rates, withholding tax rates, and parent and host country depreciation allowances. We account for their differential impact under alternative methods of double taxation relief (i.e., credit, exemption, and deduction). The hypotheses regarding the effects of changes in the tax parameters are investigated in a panel of bilateral OECD outbound stocks of foreign direct investment (FDI) from 1991 to 2002. For this, we compile annual information on taxation to construct the largest existing panel of tax parameters at the bilateral level based on national tax law and bilateral tax treaties. Our findings indicate that the parent country's statutory corporate tax rate tends to foster outward FDI, whereas the host country's statutory corporate and withholding tax rates are negatively associated with outward FDI. Depreciation allowances exert a significant impact on FDI, as hypothesized.
Number of Pages in PDF File: 45
Keywords: corporate taxation, foreign, direct investment, panel econometrics
JEL Classification: H25, H73, F21, F23, C33working papers series
Date posted: August 18, 2006
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