The impact of endogenous tax treaties on foreign direct investment: theory and evidence

Peter Egger, Mario Larch, Michael Pfaffermayr and Hannes Winner

Canadian Journal of Economics, 2006, vol. 39, issue 3, 901-931

Abstract: This paper investigates the effect of tax treaties on bilateral stocks of outward FDI. For this purpose we employ a numerically solvable general equilibrium model of trade and multinational firms to study the impact of tax treaties on both welfare and outward FDI. The model indicates under which factor endowment configurations countries gain in welfare when implementing a tax treaty. This motivates an empirical specification of the endogenous selection into implementing new tax treaties. Using data of bilateral OECD outward FDI between 1985 and 2000, we find a significant negative impact of newly implemented tax treaties on outward FDI stocks.

JEL-codes: C33 F21 F23 H25 H87 (search for similar items in EconPapers)
Date: 2006
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