Reassessing the Effects of Corporate Income Taxes on Mergers and Acquisitions Using Empirical Advances in the Gravity Literature

Sebastien Bradley, Federico Carril-Caccia and Yoto V. Yotov

National Tax Journal, 2025, vol. 78, issue 4, 821 - 861

Abstract: We study the relationship between corporate income tax (CIT) rates and mergers and acquisitions (M&As). To this end, we compile a new data set of cross-border and domestic M&A deals for more than 100 countries and 84 sectors, 1995–2019. We implement leading un(der)utilized methods from the empirical gravity literature following a stepwise estimation strategy, which exemplifies the importance of individual empirical refinements. A 1 percentage point increase in target CIT rates decreases the number of cross-border acquisitions by 0.8 percent relative to domestic M&As. The proposed methods should apply more broadly to work investigating the effects of taxation on bilateral flows.

Date: 2025
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