Merger policy and tax competition: The role of foreign firm ownership

Andreas Haufler and Christian Schulte

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: In many situations, governments have sector-specific tax and regulation policies at their disposal to influence the market outcome after a national or an international merger has taken place. In this paper we study the implications for merger policy when countries non-cooperatively deploy production-based taxes and firms may be partly owned by foreigners. We find that when foreign firm ownership is low in the pre-merger situation, non-cooperative tax policies are more efficient after a national merger, and smaller synergy effects are needed for this type of merger to be proposed and cleared. In contrast, cross-border mergers dominate when the degree of foreign firm ownership is high initially. These results suggest a link between increasing international portfolio diversification and the rising share of cross-border mergers.

Date: 2011
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Published in International Tax and Public Finance 2 18(2011): pp. 121-145

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