Beyond Borders: Supragovernmental Tax Enforcement and Investment

51 Pages Posted: 9 Jul 2020 Last revised: 13 Jul 2021

See all articles by Zackery D. Fox

Zackery D. Fox

Texas A&M University - Department of Accounting

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: July 12, 2021

Abstract

Amid growing globalization, many countries have offered tax incentives to attract corporate investment. Prior research studies the role such incentives play in firms’ location and investment choices. However, we have limited evidence on the role that uncertainty about the intensity of future tax enforcement plays in those decisions. In 2013, the European Commission (“E.C.”) abruptly began investigating tax ruling practices of several countries in response to allegations that certain firms received preferential tax treatment (“state aid cases”). We use this setting to study the economic consequences of increased uncertainty about future tax enforcement. We find evidence consistent with significant reductions in U.S. multinational firms’ subsidiary investments within, firm input purchases from, and aggregate investment of U.S. firms flowing to targeted state aid countries. Our results highlight significant real effects of increased uncertainty and complexity surrounding shifts 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 (July 12, 2021). Available at SSRN: https://ssrn.com/abstract=3627917 or http://dx.doi.org/10.2139/ssrn.3627917

Zackery D. Fox

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
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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