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Corporate tax and location choice for multinational firms

Martina Lawless (), Daire McCoy, Edgar Morgenroth () and O’Toole, Conor M.
Authors registered in the RePEc Author Service: Conor M. O'Toole ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper examines the effects of corporate tax on these location decisions of newly established multinational subsidiaries across 26 European countries over an eight year period. We contribute to the existing literature by examining the effects of a non-linear response of firm location decisions to changes in the tax rate. We also show that there are large variations in the sensitivity to tax rates across sectors and firm size groups. In particular, financial sector firms are more than twice as sensitive to changes in corporation tax rates relative to other sectors. Our baseline result is a finding that a one percent increase in the statutory or policy rate of corporation tax would lead to a reduction in the conditional location probability of 0.68 percent. Using the effective average tax rate (EATR), the marginal effect implies a reduction in the location probability of 1.15 percent following a 1 percent increase in the tax rate. Although overall tax has the expected negative effect on location probability, the marginal effect of an increase is lower at higher rates of tax.

Keywords: corporate tax; location choice; multinational firms; FDI (search for similar items in EconPapers)
JEL-codes: C25 F23 H25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2018-01-01
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Published in Applied Economics, 1, January, 2018, 50(26), pp. 2920-2931. ISSN: 0003-6846

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http://eprints.lse.ac.uk/85973/ Open access version. (application/pdf)

Related works:
Journal Article: Corporate tax and location choice for multinational firms (2018) Downloads
Working Paper: Corporate Tax and Location Choice for Multinational Firms (2015) Downloads
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