The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments

28 Pages Posted: 14 Jun 2010

See all articles by Shafik Hebous

Shafik Hebous

International Monetary Fund

Martin Ruf

University of Tübingen

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 14, 2010

Abstract

In this study, we estimate the impacts of differences in international tax rates on the probability of choosing a location for an affiliate of a multinational firm. In particular, we distinguish between the tax sensitivity of Greenfield and M&A investments. Based on a novel firm-level dataset on German outbound FDI, we find evidence that location decisions of M&A investments are less sensitive to differences in tax rates than location decisions of Greenfield investments. According to our logit estimates, and after controlling for firm and country-specific characteristics, the tax elasticity for Greenfield investments is negative and in absolute value significantly larger than that associated with M&A investments. This finding is consistent with a (partial) capitalisation of taxes in the acquisition price when the FDI project takes the form of M&A.

Keywords: FDI, corporate taxation, location, M&A, Greenfield

JEL Classification: H25, H73, F23

Suggested Citation

Hebous, Shafik and Ruf, Martin and Weichenrieder, Alfons J., The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments (June 14, 2010). CESifo Working Paper Series No. 3076. Available at SSRN: https://ssrn.com/abstract=1624789

Shafik Hebous

International Monetary Fund ( email )

Washington, DC
United States

Martin Ruf

University of Tübingen ( email )

Nauklerstraße 47
Tübingen, D-72076
Germany

HOME PAGE: http://www.uni-tuebingen.de/wiwi/steuern

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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