Corporate Taxation and Multinational Activity

Peter Egger, Simon Loretz, Michael Pfaffermayr and Hannes Winner

No 904, Working Papers from Oxford University Centre for Business Taxation

Abstract: This paper assesses the impact of corporate taxation on multinational activity. A numerically solvable general equilibrium model of trade and multinational firms is used to incorporate the following components of corporate taxation: parent and host country statutory corporate tax rates, withholding tax rates, and parent and host country depreciation allowances. We account for their differential impact under alternative methods of double taxation relief (i.e., credit, exemption, and deduction). The hypotheses regarding the effects of changes in the tax parameters are investigated in a panel of bilateral outbound stocks of foreign direct investment (FDI) from 52 parent and 45 host countries for the years 1991 to 2004. For this, we compile annual information on taxation to construct the largest existing panel of tax parameters at the bilateral level based on national tax law and bilateral tax treaties. Our findings indicate that the parent country’s statutory corporate tax rate tends to foster outward FDI, whereas the host country’s statutory corporate and withholding tax rates are negatively associated with outward FDI. Depreciation allowances exert a significant impact on FDI, as hypothesized.

Keywords: Corporate taxation; Foreign direct investment; Panel econometrics (search for similar items in EconPapers)
JEL-codes: C33 F21 F23 H25 H73 (search for similar items in EconPapers)
Date: 2009
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 (10)

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Working Paper: Corporate Taxation and Multinational Activity (2006)
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