Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25818
Authors: 
Egger, Peter
Loretz, Simon
Pfaffermayr, Michael
Winner, Hannes
Year of Publication: 
2006
Series/Report no.: 
CESifo working paper 1773
Abstract: 
This paper assesses the impact of corporate taxation on multinational activity. A numerically solvable general equilibrium model of trade and multinational firms is used to incorporate the following components of corporate taxation: parent and host country statutory corporate tax rates, withholding tax rates, and parent and host country depreciation allowances. We account for their differential impact under alternative methods of double taxation relief (i.e., credit, exemption, and deduction). The hypotheses regarding the effects of changes in the tax parameters are investigated in a panel of bilateral OECD outbound stocks of foreign direct investment (FDI) from 1991 to 2002. For this, we compile annual information on taxation to construct the largest existing panel of tax parameters at the bilateral level based on national tax law and bilateral tax treaties. Our findings indicate that the parent country's statutory corporate tax rate tends to foster outward FDI, whereas the host country's statutory corporate and withholding tax rates are negatively associated with outward FDI. Depreciation allowances exert a significant impact on FDI, as hypothesized.
JEL: 
H25
H73
F21
F23
C33
Document Type: 
Working Paper

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