Beyond Borders: Supragovernmental Tax Enforcement and Investment

53 Pages Posted: 9 Jul 2020 Last revised: 20 Oct 2020

See all articles by Zackery D. Fox

Zackery D. Fox

University of Oregon

Martin Jacob

WHU - Otto Beisheim School of Management

Jaron H. Wilde

University of Iowa - Henry B. Tippie College of Business

Ryan J. Wilson

University of Oregon

Date Written: October 16, 2020

Abstract

Amid growing globalization, many countries have offered significant tax incentives to attract corporate investment. Prior research studies the role such tax incentives play in firms’ location and investment choices. However, we have limited evidence on the role tax enforcement plays in those decisions. Recently, the European Commission (“E.C.”) abruptly began investigating tax ruling practices of several member countries in response to allegations that certain firms received preferential tax treatment (“state aid cases”). We use this setting to study the nature, extent, and economic consequences of tax enforcement. We find evidence consistent with broad E.C. scrutiny of U.S. firms operating in state aid countries. We also document significant reductions in U.S. multinational firms’ input purchases from, declines in subsidiary investments within, and reductions in aggregate investment of U.S. firms flowing to targeted state aid countries, relative to other countries in the European Union, following the investigations. Our results highlight significant real effects of changes in supragovernmental tax enforcement.

Keywords: tax enforcement, tax planning, tax authority, state aid

JEL Classification: M41, M48, H25, H26

Suggested Citation

Fox, Zackery D. and Jacob, Martin and Wilde, Jaron H. and Wilson, Ryan J., Beyond Borders: Supragovernmental Tax Enforcement and Investment (October 16, 2020). Available at SSRN: https://ssrn.com/abstract=3627917 or http://dx.doi.org/10.2139/ssrn.3627917

Zackery D. Fox

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Jaron H. Wilde

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

Ryan J. Wilson (Contact Author)

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

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