Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/24656
Authors: 
Overesch, Michael
Year of Publication: 
2007
Series/Report no.: 
ZEW Discussion Papers 07-071
Abstract: 
This paper investigates whether the size of multinationals? real investments in a high-tax country is affected by profit shifting activities. A simple theoretical analysis shows that tax rates abroad impact the cost of capital in the presence of profit shifting activities of multinational companies. As profit shifting opportunities constitute a competitive advantage, the respective size of investments should theoretically increase if profits can be shifted to a lower taxing country. An empirical analysis, based on a panel of German inbound investments, confirms a positive tax response of real investments with a decreasing tax rate at the foreign direct investor?s home country. Hence, the results suggest that the size of foreign investments in a high-tax country is positively affected by lower foreign taxation of shifted profits.
Subjects: 
Taxation
Multinationals
Profit Shifting
Investment Decisions
Firm-level Data
JEL: 
H32
H25
F23
F21
Document Type: 
Working Paper

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