How Low Business Tax Rates Attract Multinational Headquarters: Municipality-Level Evidence from Germany

Sascha Becker, Peter Egger and Valeria Merlo

No 2008-30, Stirling Economics Discussion Papers from University of Stirling, Division of Economics

Abstract: Most existing empirical evidence on the impact of profit taxation on multinational firm activity is based on cross-country data. One major drawback of such data is that countries differ not only with regard to taxes but along other dimensions which might be hard to capture by means of observable characteristics. We compile a database of more than 11,000 municipalities in Germany to analyze the sensitivity of the location decisions of foreign MNEs with respect to business tax rates which are levied directly by the municipalities. Using count data models suited for cross-sectional and panel data, we find that higher business tax rates have a negative effect on the number of foreign MNE headquarters, after controlling for other determinants of firm location decisions. On average, a one-percent reduction of the municipal business tax rate (equivalent to a decline by about 0.14 percentage points) leads to an increase in the number of headquarters of foreign MNEs by about 0.05. Hence, the average municipality needs to reduce its business tax rate by 20% to attract one foreign MNE.

Keywords: Multinational firms; Profit taxation; Regional public finance; Count d ata (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-eec, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://hdl.handle.net/1893/641

Related works:
Working Paper: How Low Business Tax Rates Attract Multinational Headquarters: Municipality-Level Evidence from Germany (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:stl:stledp:2008-30

Access Statistics for this paper

More papers in Stirling Economics Discussion Papers from University of Stirling, Division of Economics Division of Economics, University of Stirling, Stirling, Scotland FK9 4LA. Contact information at EDIRC.
Bibliographic data for series maintained by Liam Delaney ( this e-mail address is bad, please contact ).