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Location choice and tax responsiveness of foreign multinationals: Evidence from ASEAN countries

Athiphat Muthitacharoen
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Athiphat Muthitacharoen: Chulalongkorn University

PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: This study uses a firm-level dataset to examine the impacts of taxation on multinationals' decisions to set up new foreign subsidiaries in developing ASEAN countries. It finds that taxes play a critical role in MNEs' location choice decision, with tax incentives being instrumental for maintaining location choice probabilities associated with each host country. The findings also indicate important heterogeneity in the tax responsiveness. First, the tax sensitivity for high-tech firms is significantly lower than that for low-tech firms. Second, having a prior presence in the respective host country is associated with substantially lower tax responsiveness. Finally, in accordance with international tax-avoidance considerations, the tax responsiveness is significantly diminished for affiliates with a connection to tax-haven countries. These provide important policy implications for developing-country governments that consider employing tax incentives to attract MNEs.

Keywords: Taxation; FDI; Multinational firms; ASEAN; Developing countries (search for similar items in EconPapers)
JEL-codes: H25 H87 F21 F23 C25 (search for similar items in EconPapers)
Date: 2018-10, Revised 2018-10
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