Multiple Taxes and Alternative Forms of FDI: Evidence from Cross-Border Acquisitions

32 Pages Posted: 6 Oct 2015

See all articles by Nils Herger

Nils Herger

Swiss National Bank - Study Center Gerzensee; University of Bern - Faculty of Economics and Social Sciences

Christos Kotsogiannis

University of Exeter

Steve McCorriston

University of Exeter Business School

Date Written: March 18, 2015

Abstract

This paper explores the role of tax instruments in affecting foreign direct investment (FDI), paying particular attention on their effect on two forms of FDI strategy, ‘horizontal’ and ‘vertical’. Applying a decomposition of FDI strategies to the universe of cross-border mergers (the dominant form of FDI) over the period 1999-2010, it emerges that taxes have a much more nuanced effect on FDI than frequently suggested; while corporate taxes affect FDI negatively, the tax elasticity varies depending on the FDI strategy (with vertical FDI being in general more responsive), the exact measure of taxation, and international tax considerations (double taxation, withholding taxes). Sales taxes also affect FDI, but only horizontally.

Keywords: Corporate taxation, Cross-border acquisitions, Location choice, Poisson regression, Sales taxes

JEL Classification: F15, F21, F23, F33

Suggested Citation

Herger, Nils and Kotsogiannis, Christos and McCorriston, Steve, Multiple Taxes and Alternative Forms of FDI: Evidence from Cross-Border Acquisitions (March 18, 2015). International Tax and Public Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2669402

Nils Herger (Contact Author)

Swiss National Bank - Study Center Gerzensee ( email )

Dorfstrasse 2
Gerzensee, 3115
Switzerland
+41317803114 (Phone)

HOME PAGE: http://www.szgerzensee.ch

University of Bern - Faculty of Economics and Social Sciences ( email )

Schanzeneckstrasse
Bern, 3001
Switzerland

HOME PAGE: http://www.vwi.unibe.ch

Christos Kotsogiannis

University of Exeter ( email )

Exeter EX4 4QX, Devon
United Kingdom

Steve McCorriston

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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