Evaluating Tax Policy for Location Decisions

Devereux, Michael P.; Griffith, Rachel

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Evaluating Tax Policy for Location Decisions

34 Pages Posted: 9 Apr 2002

See all articles by Michael P. Devereux

Michael P. Devereux

Centre for Business Taxation, Oxford University; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); University of Oxford - Said Business School; University of Oxford - Said Business School

Rachel Griffith

Institute for Fiscal Studies (IFS); University of Manchester; Centre for Economic Policy Research (CEPR)

Date Written: March 2002

Abstract

We consider the impact of taxation when investors face a discrete choice between two or more mutually exclusive projects; in particular we consider the location choice of multinationals. Such choices depend on an effective average tax rate. We propose a precise measure of this rate, which is shown to be equal to a weighted average of an effective marginal tax rate and an adjusted statutory tax rate, where the weights depend on the profitability of the investment. Estimates of the distribution of this measure are presented and compared for domestic and international investment in the USA, France, Germany, and the UK. We analyse the impact of harmonising corporate tax rates in Europe on incentives to locate in France, Germany and the UK.

Keywords: tax policy, investment, location choice, tax coordination

JEL Classification: G31, H25, H32

Suggested Citation: Suggested Citation

Devereux, Michael P. and Griffith, Rachel, Evaluating Tax Policy for Location Decisions (March 2002). Available at SSRN: https://ssrn.com/abstract=306762