Who Cares about Corporate Taxation? Asymmetric Tax Effects on Outbound FDI

Michael Overesch and Georg Wamser

No Ifo Working Paper No. 59, Ifo Working Paper Series from Ifo Institute for Economic Research at the University of Munich

Abstract: This paper investigates whether different types of FDI are asymmetrically affected by corporate taxation. We classify investment projects according to several characteristics such as the general motivation for FDI, the type of business activity, or the degree of internationalization of the multinational. Subsequently, we analyze how local taxes influence the number of German outbound investments in European countries. The analysis reveals significant asymmetries with regard to tax effects: vertically integrated investments are more sensitive to host-country taxation than horizontal FDI; larger taxrate elasticities are estimated if business activities are considered highly mobile; in accordance with profit-shifting arguments, subsidiaries of more internationalized companies are less tax responsive to host taxation.

Keywords: FDI; corporate taxation; multinational company; count data (search for similar items in EconPapers)
JEL-codes: F21 F23 H25 H32 (search for similar items in EconPapers)
Date: 2008
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