Cross-Border Tax Effects on Affiliate Investment - Evidence from European Multinationals

Johannes Becker and Nadine Riedel

No 816, Working Papers from Oxford University Centre for Business Taxation

Abstract: Several recent papers show that increases in the capital stock at one multinational affiliate tend to raise the capital stock at other locations, rather than to reduce it. In this paper, we theoretically and empirically explore the consequences of these findings for national corporate tax policy. Our main hypothesis is that domestic corporate taxation not only reduces domestic capital investment but also lowers capital stocks at foreign affiliates within a multinational group. The paper identifies several channels through which domestic taxation may exert such a cross-border effect on foreign capital. Using micro data on European multinational firms, we confirm the hypothesis showing that a ten percentage point increase in corporate tax rates is associated with a 5.5 percent decrease in the affiliate’s capital stock. From a welfare point of view, this cross-border tax effect on capital investment gives rise to a negative fiscal externality of corporate taxation which is empirically shown to compensate a substantial fraction of the well-known positive profit shifting externality.

Keywords: Multinational Firms; Foreign Direct Investment; Corporate Taxation (search for similar items in EconPapers)
JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sbs.ox.ac.uk/sites/default/files/Busine ... Series_08/WP0816.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Working_Papers/Series_08/WP0816.pdf [301 Moved Permanently]--> https://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Working_Papers/Series_08/WP0816.pdf)

Related works:
Journal Article: Cross-border tax effects on affiliate investment—Evidence from European multinationals (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:btx:wpaper:0816

Access Statistics for this paper

More papers in Working Papers from Oxford University Centre for Business Taxation Contact information at EDIRC.
Bibliographic data for series maintained by Dongxian Guo ( this e-mail address is bad, please contact ).