international taxation and the direction and volume of cross border m as we show that the parent subsidiary structure of multinational firms created by cross border mergers and acquisitions is affected by the prospect of international double taxation specifically the likelihood of parent firm location in a country following a cross border takeover is reduced by high international double taxation of foreign source income at the same time countries with high international double taxation attract smaller numbers of parent firms a unilateral elimination of worldwide taxation by the united states is simulated to increase the proportion of parent firms locating in the united states following cross border mergers and acquisitions from 53 to 58

tax motivated transfer pricing and us intrafirm trade prices abstract this paper analyzes monthly data on us international trade prices between 1997 and 1999 in order to investigate the impact of tax influences on intrafirm trade prices results indicate that there is substantial evidence of tax motivated transfer pricing in us intrafirm trade prices there is a strong and statistically significant relationship between countries tax rates and the prices of intrafirm transactions controlling for other variables that affect trade prices as country tax rates are lower us intrafirm export prices are lower and us intrafirm import prices are higher this finding is consistent with theoretical predictions regarding tax motivated income shifting behavior

income distribution political instability and investment abstract this paper successfully tests on a sample of 71 countries for the period 1960 85 the following hypotheses income inequality by fuelling social discontent increases sociopolitical instability the latter by creating uncertainty in the politico economic environment reduces investment as a consequence income inequality and investment are inversely related since investment is a primary engine of growth this paper identifies a channel for an inverse relationship between income inequality and growth we measure socio political instability with indices which capture the occurrence of more or less violent phenomena of political unrest and we test our hypotheses by estimating a two equation model in which the endogenous variables are investment and an index of socio political instability our results are robust to sensitivity analysis on the specification of the model and the measure of political instability and are unchanged when the model is estimated using robust regression techniques

foreign direct investment competition and industrial development in the host country this paper analyses the impact of foreign direct investment fdi on the development of local firms we focus on two likely effects of fdi a competition effect which deters entry of domestic firms and positive market externalities which foster the development of local industry using a simple theoretical model to illustrate how these forces work we show that the number of domestic firms follows a u shaped curve where the competition effect first dominates but is gradually outweighed by positive externalities evidence for ireland tends to support this result specifically applying semi parametric regression techniques on plant level panel data for the manufacturing sector we find that while the competition effect may have initially deterred local firms entry this initial effect has been outpaced by positive externalities making the overall impact of fdi largely positive for the domestic industry

tax competition when firms choose their organizational form should tax loopholes for multinationals be closed we analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings governments are able to commit to long run tax discrimination policies before firms decisions are made and before statutory capital tax rates are chosen non cooperatively whether a coordinated reduction in the tax preferences granted to mobile firms is beneficial or harmful for the competing countries depends critically on the elasticity with which the firms organizational structure responds to tax discrimination incentives a model extension with countries of different size shows that small countries are likely to grant more tax preferences than larger ones along with having lower effective tax rates

how elastic are national corporate income tax bases in oecd countries the role of domestic and foreign tax rates abstract to what extent do reductions in corporate income tax cit rates attract foreign tax bases what are the revenue implications of a unilateral tax reduction when tax bases are internationally mobile these questions are explored using annual data from 17 oecd countries spanning the period 1982 to 2005 controlling for fixed country effects year effects and country time trends and subjecting our results to an extensive robustness analysis we find i a country s aggregate reported corporate profits are negatively and significantly affected by cit rate reductions in neighbouring countries ii a unilateral reduction in the domestic cit rate results in lower domestic cit revenues

multinationals and industrial policy are there benefits to the host country from multinational investments does potential value from these investments make active industrial policy worthwhile we answer the first question affirmatively having reviewed economic principles and evidence concerning the effects of projects locating in or not being off shored from a country on the second policy can have a limited effect in influencing location decisions but it is doubtful that it is cost effective implementation faces lack of information risk of capture and in many cases non rigorous processes competition between jurisdictions means that much policy is investment diversion not investment creation there is a case for supra national controls as with eu state aid regulations for policy to be used only for well defined market failures and for better implementation and more rigorous ex ante appraisal and ex post evaluation copyright 2013 oxford university press

do taxes affect corporate debt policy evidence from us corporate tax return data abstract this paper uses u s statistics of income soi corporate income tax returns balance sheet data on all corporations to estimate the effects of changes in corporate tax rates on the debt policies of firms of different sizes small firms face very different tax rates than larger firms and relative tax rates have also changed frequently over time providing substantial information to identify tax effects the results suggest that taxes have had a strong and statistically significant effect on debt levels for example cutting the corporate tax rate by ten percentage points e g from 46 to 36 holding personal tax rates fixed is forecast to reduce the fraction of assets financed with debt by around 3 5 since small firms normally rely much more heavily on debt finance yet face much lower tax incentives to use debt the estimated effect of taxes would be strongly biased downwards without controls for firm size

relocation of headquarters and international taxation about 6 of multinationals relocated their headquarters to another country in the 1997 2007 period this paper presents empirical evidence on the role of taxes in these relocation decisions it considers a sample of 140 multinationals that relocated their headquarters over the past decade and compares them to a control group of 1943 multinationals that did not relocate it is found that the additional tax due in the home country upon repatriation of foreign profits has a positive effect on the probability of relocation the empirical results suggest that an increase in the repatriation tax by 10 percentage points would raise the share of relocating multinationals by 2 2 percentage points equivalent to an increase in the number of relocations by more than one third furthermore the presence of controlled foreign corporation legislation also has a positive effect on the number of relocations

current account dynamics and the terms of trade harberger laursen metzler two generations later this is a study of the current account dynamics resulting from the savings and investment dynamics in a small open economy which is subject to exogenous changes in its terms of trade and in world interest rates anticipated and unanticipated as well as temporary and permanent terms of trade changes have very different effects there is however a general tendency towards cycles in both savings and investment which gives rise to cycles in the current account it is shown that the classic harberger laursen metzler effect on saving of a terms of trade deterioration can have any sign for plausible parameter values both for temporary and permanent disturbances

the rate of profit in the united states this paper traces the evolution of profitability in the united states from the turn of the century the first sectio n considers various measures of profitability over different sectors of the economy since 1947 the same downward tendency can be observed in all instances except the case of the after all tax rate of profit in the corporate sector the second part traces the trend in profita bility from 1900 to 1947 two periods of declining returns can be ide ntified over the last century the first after world war i and the se cond after 1966 between the two periods a recovery occurred during world war ii which was primarily absorbed in taxes copyright 1987 by oxford university press

a note on time preference and the tobin effect abstract this paper proposes an alternative time preference specification to uzawa preferences time preference is modeled as an increasing function of real wealth so that the tobin effect and stability rest on optimizing behavior as opposed to counterintuitive preference assumptions

reforming an asymmetric union on the virtues of dual tier capital taxation the tax competition for mobile capital in particular the reluctance of small countries to agree on measures of tax coordination has ongoing political and economic fallouts within europe we analyse the effects of introducing a two tier structure of capital taxation where the asymmetric member states of a union choose a common federal tax rate in the first stage and then non cooperatively set local tax rates in the second stage we show that this mechanism effectively reduces competition for mobile capital between the members of the union moreover it distributes the gains across the heterogeneous states in a way that yields a strict pareto improvement over a one tier system of purely local tax choices we also discuss the effects of diverging capital endowments within the union and capital flows to third countries

saving taxes through foreign plant ownership this paper analyzes to which extent foreign plant ownership involves lower tax payments than domestic plant ownership we employ a model of endogenous foreign subsidiary ownership to derive a set of empirically testable hypotheses about the differential taxation of foreign and domestically owned subsidiaries we assess these hypotheses in a data set of 33 577 european foreign and domestically owned manufacturing plants we identify a significant tax saving of endogenous foreign owner ship on average foreign owners pay 594 euros per employee or about 56 percent less than domestic owners of similar subsidiaries this effect is larger in thinner markets with fewer plants in markets with a greater relative presence of foreign owners and for foreign owners of larger plants

foreign direct investment in a world of multiple taxes abstract governments impose multiple taxes on foreign investors though studies of the effect of tax policy on the location of foreign direct investment fdi focus almost exclusively on corporate income taxes this paper examines the impact of indirect non income taxes on fdi by american multinational firms using affiliate level data that permit the introduction of controls for parent companies and affiliate industries indirect tax burdens significantly exceed the foreign income tax obligations of foreign affiliates of american companies estimates imply that 10 higher local indirect tax rates are associated with 7 1 lower affiliate assets which is similar to the effect of 10 higher income tax rates affiliate output falls by 2 9 as indirect taxes rise by 10 while higher income taxes have more modest output effects high corporate income tax rates depress capital labor ratios and profit rates of foreign affiliates whereas high indirect tax rates do not these patterns reveal the impact of indirect taxes and suggest the mechanisms by which direct and indirect taxes affect fdi

cross jurisdictional income shifting by u s multinationals evidence from international bond offerings we examine whether tax incentives influence where u s multinationals locate their interest deductions worldwide our sample includes international bond offerings by u s multinationals during 1987 1997 denominated in the currencies of australia canada france germany italy japan or the united kingdom our results suggest that u s multinationals debt location decisions take into account the effect of jurisdiction specific tax loss carryforwards and binding foreign tax credit limitations on the value of debt tax shields our results are also consistent with u s multinationals locating interest deductions in different tax jurisdictions as a mechanism to achieve tax motivated income shifting

international evidence on the long run impact of inflation in this paper i use a structural vector autoregression framework to analyze the effects of a permanent change in inflation on the long run real interest rate and real output level in 14 industrialized countries long run monetary superneutrality is rejected for all 14 countries using annual data the results indicate that a permanent increase in inflation lowers the long run real interest rate in each country a permanent increase in inflation also increases the long run real output level in a number of countries long run monetary superneutrality is also rejected for four out of the five countries examined using quarterly data under long run monetary superneutrality lrsn a per

altered states taxes and the location of foreign direct investment in america this paper compares the distribution between u s states of investment from countries that grant foreign tax credits with investment from all other countries the ability to apply foreign tax credits against home country tax liabilities reduces an investor s incentive to avoid high tax foreign locations state corporate tax rate differences of 1 percent are associated with differences of 9 11 percent between the investment shares of foreign tax credit investors and the investment shares of all others suggesting that state taxes significantly influence the pattern of foreign direct investment in the united states copyright 1996 by american economic association

macro determinants of fdi inflows to japan an analysis of source country characteristics this paper examines the source country determinants of fdi into japan the paper highlights certain methodological and theoretical weaknesses in the previous literature and offers some explanations for hitherto ambiguous results specifically the paper highlights the importance of panel data analysis and the identification of fixed effects in the analysis rather than simply pooling the data indeed we argue that many of the results reported elsewhere are a feature of this mis specification to this end pooled fixed effects and random effects estimates are compared the results suggest that fdi into japan is inversely related to trade flows such that trade and fdi are substitutes moreover the results also suggest that fdi increases with home country political and economic stability the paper also shows that previously reported results regarding the importance of exchange rates relative borrowing costs and labour costs in explaining fdi flows are sensitive to the econometric specification and estimation approach the paper also discusses the importance of these results within a policy context in recent years japan has sought to attract fdi though many firms still complain of barriers to inward investment penetration in japan the results show that cultural and geographic distance are only of marginal importance in explaining fdi and that the results are consistent with the market seeking explanation of fdi as such the attitude to risk in the source country is strongly related to the size of fdi flows to japan 2007 the authors journal compilation 2007 blackwell publishing ltd

proxies for the corporate marginal tax rate abstract this paper focuses on how best to measure the corporate marginal tax rate which is an important input into financial analysis of the cost of capital financing policy corporate hedging and corporate reorganizations the results indicate that the simulated tax rate used by shevlin 1990 and graham 1996 although difficult to calculate is the best available proxy for the true marginal tax rate if the simulated rate is unavailable an easy to calculate trichotomous variable or the statutory marginal tax rate which captures the progressivity in the tax schedule are reasonable alternatives better than most commonly used tax variables

transfer pricing regulation and tax competition abstract the paper analyzes multinational enterprises incentives to manipulate internal transfer prices to take advantage of tax differences across countries and implications of transfer pricing regulations as a countermeasure against such profit shifting we find that tax motivated foreign direct investment fdi may entail inefficient internal production but may benefit consumers thus encouraging transfer pricing behavior to some extent can enhance social welfare furthermore we consider tax competition between two countries to explore its interplay with transfer pricing regulations we show that the fdi source country will be willing to set a higher tax rate and tolerate some profit shifting to a tax haven country if the regulation is tight enough we also indicate a novel mechanism through which it is the larger country that undertakes tax motivated fdi the pattern we often observe in reality

should countries control international profit shifting we present a fiscal competition model with two policy instruments the level of corporate taxation and the tightness of control of profit shifting by multinational firms mnf we show that a country may optimally decide not to monitor the mnf for two reasons firstly this country becomes an attractive location for mnf activity despite a high corporate tax secondly as the profits of the mnf become mobile the focus of tax competition is shifted taxation then influences both an mnf s location and the place where it declares its profits

why are latin america s savings rates so low an international comparative analysis abstract this paper presents a theoretical and empirical assessment of the determinants of savings rates with special emphasis on latin american savings rates the study is based on international comparisons using data from 36 countries for 1970 1992 a distinction is made between private and public savings the later are endogenously determined by economic and political variables per capita income growth is the most important determinant of private and public savings public savings are lower in countries with higher political instability public savings crowd out private savings but less than proportionately low latin american savings are due to the magnitudes of their determinants rather than structural differences

a knowledge and physical capital model of international trade flows foreign direct investment and multinational enterprises abstract this paper addresses two important issues at the nexus of the literatures on international trade foreign direct investment fdi foreign affiliate sales fas and multinational enterprises mnes first the introduction of a third internationally mobile factor physical capital to the standard 2 2 2 knowledge capital model of mnes with skilled and unskilled labor allows us to resolve fairly readily the puzzle in the modern mne literature that foreign affiliate sales among two identical economies completely displace their international trade intra industry trade and intra industry fdi and fas can coexist for national and multinational firms with identical productivities in identical countries second the introduction also of a third country to the model suggests a formal n country theoretical rationale for estimating gravity equations of bilateral fdi flows and fas in a manner consistent with estimating gravity equations for bilateral trade flows

international profit shifting within multinationals a multi country perspective abstract we model the opportunities and incentives generated by international tax differences for international profit shifting by multinationals the model considers not only profit shifting arising from international tax differences between affiliates and parent companies but also from tax differences between affiliates in different host countries our model yields the prediction that a multinational s profit shifting in a country depends on a weighted average of international tax rate differences between all countries where the multinational is active using a unique dataset containing detailed firm level information on the parent companies and subsidiaries of european multinationals and information about the international tax system we test our model and empirically examine the extent of intra european profit shifting by european multinationals on average we find a semi elasticity of reported profits with respect to the top statutory tax rate of 1 3 while shifting costs are estimated to be 0 6 of the tax base international profit shifting leads to a substantial redistribution of national corporate tax revenues many european nations appear to gain revenues from profit shifting by multinationals largely at the expense of germany

fiscal paradise foreign tax havens and american business the tax haven affiliates of american corporations account for more than 20 percent of u s foreign direct investment and nearly a third of the foreign profits of u s firms american companies report extraordinarily high profit rates on their tax haven investments in 1982 this behavior implies that the revenue maximizing tax rate for a typical haven is around 5 8 percent american and foreign investment in tax havens has an uncertain effect on u s tax revenue but since low tax rates encourage american companies to shift profits out of high tax foreign countries it is possible that low foreign tax rates ultimately enhance u s tax collections

home bias and cross border taxation abstract the relationship between cross border taxation and free float home bias is examined this explicitly recognizes that insider shares are unavailable to foreigners other important explanations for home bias information asymmetry behavioural and governance issues are controlled when examining the impact of cross border tax variables in our sample of countries about sixty percent eighty percent withhold taxes on realized capital gains dividends of foreign investors and about thirty percent of the mature economies provide imputation of taxes paid on dividend income by domestic corporations dividend imputation is a statistically significant impediment to cross border equity flows a tax credit variable for foreign taxes paid on dividends is constructed and found to be statistically significant in reducing home bias a relatively high foreign tax rate that cannot be offset by tax credits is found to significantly increase home bias these results hold for float adjusted home bias and traditional international portfolio home bias

multinationals profit response to tax differentials effect size and shifting channels this paper provides a quantitative review of the empirical literature on profit shifting behavior of multinational firms we synthesize the evidence from 25 studies and find a substantial response of profit measures to international tax rate differentials accounting for misspecification biases by means of meta regressions we predict a tax semi elasticity of subsidiary pre tax profits of about 0 8 moreover we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel our results suggest that transfer pricing and licensing are the dominant profit shifting channel

the impact of the corporate income tax evidence from state organizational form data abstract by taxing the income of corporate firms at a different rate than non corporate firms taxes can play an important role in a firm s choice of organizational form the sensitivity of the organizational form decision to tax rates provides a key indicator of the distortion created by the corporate income tax this paper uses new cross sectional data on organizational form choices across states compiled in the census of retail trade to estimate this sensitivity the results document a significant impact of the relative taxation of corporate to personal income on the share of real economic activity that is done by corporations and that the impact is many times larger than has been found in the previous empirical literature based on time series data the results show little impact however on the actual operations of firms such as their labor intensity wages and the like they do indicate that firms are able to exploit the progressivity of the corporate income tax system by dividing into numerous firms

international corporate tax avoidance a review of the channels magnitudes and blind spots this paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations it surveys evidence on main channels of corporate tax avoidance including transfer mispricing international debt shifting treaty shopping tax deferral and corporate inversions moreover it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting we find that the literature suggests that for the most recent year a 1 percentage point lower corporate tax rate compared to other countries will expand before tax income by 1 5 percent an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time the literature on tax avoidance still has several unresolved puzzles and blind spots that require further research

dual income taxation a promising path to tax reform for developing countries summary the dual income tax combines a progressive tax on labor income and a lower flat tax on income from capital unlike flat tax systems a dual income tax provides developing countries greater flexibility in addressing tax competition while retaining progressivity countries could use the move to a dual income tax system not just as an opportunity to rationalize the taxation of income from business operations and investment but also as a vehicle for broader reform of their tax systems

corporate taxation debt financing and foreign plant ownership this paper compares domestically and foreign owned plants with respect to their debt to assets ratio and analyzes to which extent the difference is systematically affected by corporate taxation to derive hypotheses about influence of corporate taxation on a firm s debt financing we adapt a standard model of taxation and financing decisions of firms for the case of international debt shifting activities of foreign owned firms we estimate the average difference between a foreign owned and a domestically owned firm s debt ratio treating the mode of ownership as endogenous using data from 32 067 european firms we find that foreign owned firms on average exhibit a significantly higher debt ratio than their domestically owned counterparts in the host country moreover this gap in the debt ratio increases with the host country s statutory corporate tax rate

effective tax rates and the user cost of capital when interest rates are low abstract interest rates are a key component of both user cost and effective tax rate measures of company taxation and each is regularly used in empirical tests of tax impacts on investment however it is shown that when interest rates are low the two measures are not monotonically related using a simulated sample of observations this feature is found to generate perverse estimates of the effects of taxation on the investment plans of firms

how low business tax rates attract mne activity municipality level evidence from germany most existing empirical evidences on the impact of profit taxation on multinational firm activity are based on cross country data one major drawback of such data is that countries differ not only with regard to taxes but also with 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 location decisions of foreign mnes in germany with respect to business tax rates which are levied directly by the municipalities we find that higher business tax rates have a negative effect on three alternative measures of mne activity after controlling for other determinants of firm location decisions the number of foreign mnes mne employment and mne fixed assets our results suggest that tax competition among regional entities for foreign investors is a game of a few in cross section instrumental variable regressions 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 legally independent foreign owned firms by about 0 45 the average municipality would have to reduce its business tax rate by about 2 2 percentage points or 15 from its average level to attract one foreign mne hence municipalities need to be attractive in other dimensions to be able to use tax instruments to attract foreign firms at the margin

some puzzles about money finance and the monetary circuit this paper discusses three puzzles about money and finance having to do with the velocity of circulation the marxian concept of the monetary circuit and the deceptively simple question of whether there is enough money in existence at any point in time to purchase the full value of output these issues take on particular significance at times of economic and financial crisis but have often been neglected by the mainstream of the economics profession leaving the field to keynes s brave heretics

income shifting investment and tax competition theory and evidence from provincial taxation in canada abstract we study corporate income taxation when firms operating in multiple jurisdictions can shift income using tax planning strategies because income of corporate groups is not consolidated for tax purposes in canada firms may use financial techniques such as lending among affiliates to reduce subnational corporate taxes a simple theoretical model shows how income shifting affects real investment government revenues and tax base elasticities depending on whether firms must allocate income to provinces or not we then analyze data from administrative tax records to compare the behavior of corporate subsidiaries that may engage in income shifting to comparable firms that must use the statutory allocation formula to determine their taxable income in each province the evidence suggests that income shifting has pronounced effects on provincial tax bases according to our preferred estimate the elasticity of taxable income with respect to tax rates for income shifting firms is 4 9 compared with 2 3 for other comparable firms

income misattribution under formula apportionment abstract alternatives to the current system of separate tax accounting such as the proposed common consolidated corporate tax base in europe would apportion a firm s worldwide profits using formulas based on the location of employment capital or sales this paper offers a new method of evaluating the accuracy of these apportionment rules and the ownership distortions they create evidence from european company accounts indicates that apportionment formulas significantly misattribute income since employment and other factors on which they are based do a very poor job of explaining a firm s profits for example the magnitude of property employment and sales explains less than 22 of the variation in profits between firms and the prediction estimates from using such a formula exceed half of predicted profits 64 of the time and exceed twice predicted income 11 of the time as a result the use of formulas rewards or punishes international mergers and divestitures by reallocating taxable income between operations in jurisdictions with differing tax rates the associated ownership distortion is minimized by choosing factor weights to minimize weighted squared prediction errors for which based on the european evidence labor inputs should play little if any role in allocation formulas but even a distortion minimizing formula creates large incentives for inefficient ownership reallocation due to the enormous variation in profitability that is unexplained by formulary factors implying that significant resource allocation costs would accompany european adoption of formulary apportionment methods

foreign in direct investment and corporate taxation foreign investments of multinational firms are often complex in that they involve conduit entities in particular a multinational can pursue either a direct or an indirect investment strategy where the latter involves an intermediate corporate entity and is associated with enhanced opportunities for international tax planning as a consequence in the case of indirect investments the role of corporate taxation in destination countries may change this paper investigates the effects of corporate taxation on foreign investment decisions of german multinationals taking explicitly into account that firms choose in a first stage the investment regime direct vs indirect the empirical findings consistent with theoretical predictions suggest that tax effects differ according to whether the investment is direct or indirect les investissements a l etranger des firmes plurinationales sont souvent complexes en ce sens qu ils se font par des voies indirectes en particulier une firme plurinationale peut soit poursuivre une strategie directe ou indirecte d investissement ou dans le second cas une entite corporative intermediaire est impliquee cette strategie est associee aux possibilites plus grandes de tirer profit d une planification fiscale internationale en consequence dans le cas d investissements indirects le role de la fiscalite des entreprises dans les choix de destination peut changer ce texte analyse les effets de la fiscalite des entreprises sur les decisions d investissement a l etranger des multinationales allemandes en tenant compte du fait que dans une premiere etape les firmes choisissent le regime d investissement i e investissement direct ou indirect les resultats empiriques sont consistants avec les predictions theoriques et suggerent que les effets fiscaux varient selon que l investissement est direct ou indirect

technological change in capitalism some marxian themes most social theorists agree with adam smith s assertion that consumption is the sole end and purpose of all production with technology serving as a means to that end marx acknowledged the great benefits that capitalism s unprecedented technological dynamism has brought to humanity for marx however the end and purpose of capitalist production is the accumulation of surplus value from this perspective technology in capitalism is first and foremost a means to capital s end valorisation with technological change furthering human ends in a profoundly partial and precarious manner this paper reconstructs marx s argument in favour of this general thesis it concludes with a discussion of three illustrations when technological development is subsumed under the valorisation imperative technological change in the workplace will tend to reinforce coercive and exploitative social relations full development of the immense potential of network technologies will be systematically hampered and technological change will tend to generate overaccumulation and financial crises

debt shifting and ownership structure abstract previous theoretical studies on the debt shifting behavior of multinationals have assumed affiliates of multinationals to be wholly owned we develop a model that allows a multinational firm to determine both the leverage and ownership structure in affiliates endogenously a main finding is that affiliates with minority owners have less debt than wholly owned affiliates and therefore a less tax efficient financing structure this is due to an externality that arises endogenously in our model where costs and benefits of debt shifting are shared asymmetrically between minority and majority owners our findings provide a theory framework for recent empirical findings

the growth effects of tax rates in the oecd this paper explores the merits of macro and micro based tax rate measures within an open economy fiscal policy and growth model using annual data for 15 oecd countries we find statistically small non robust long run growth effects of macro based average tax rates on capital income and consumption but some evidence for average labor income tax effects changes in micro marginal income tax rates at both the personal and corporate levels yield statistically robust gdp responses of modest size both domestic and foreign corporate taxes appear relevant in general tax effects on gdp operate largely via factor productivity rather than factor accumulation

evidence of the fisher effect from u k indexed bonds newly available data from the u k market for indexed securities are used to test the fisher hypothesis for monthly observations of interest rates at 14 maturities the hypothesis that the after tax nominal interest rate is a constant plus anticipated inflation proves to be a reasonable approximation of reality for longer maturities the coefficients on the expected rate of inflation are approximately equal to one the mundell tobin effect is in evidence for shorter maturities the inverted fisher effect is in evidence for shorter maturities the inverted fisher effect is decisively rejected the evidence suggests that past difficulties encountered in trying to prove the fisher effect have been due to the lack of a direct measure of inflation expectations and real interest rates copyright 1992 by mit press

multinational firms and tax havens multinational firms with operations in high tax countries can benefit the most from reallocating taxable income to tax havens though this is sufficiently difficult and costly that only 20 4 of german multinational firms have any tax haven affiliates among german manufacturing firms a 1 percentage point higher foreign tax rate is associated with a 2 3 greater likelihood of owning a tax haven affiliate this is consistent with tax avoidance incentives and contrasts with earlier evidence for u s firms the relationship is less strong for firms in service industries possibly reflecting the difficulty of reallocating taxable service income

taxes tariffs and transfer pricing in multinational corporate decision making three interrelated aspects of u s multinational corporation activity are analyzed here the ability to shift profits from high tax countries to low tax countries the impact of host country taxes and tariffs on the distribution of real capital and the influence of these policies on international trade patterns of the united states and host countries the cross sectional empirical analysis indicates that the observed pattern of reported profits in high and low tax countries is consistent with income shifting behavior and that real investment responds to host country effective tax rates and tariffs the united states appears both to import more from and export more to low tax countries where mnc investment is greater but this bilateral focus must be amplified to consider multilateral effects if trade benefits are to be projected copyright 1991 by mit press

corporate taxes and the location of intangible assets within multinational firms intangible assets like patents and trademarks are increasingly seen as the key to competitive success and as the drivers of corporate profit moreover they constitute a major source of profit shifting opportunities in multinational enterprises mnes due to a highly intransparent transfer pricing process this paper argues that for both reasons mnes have an incentive to locate intangible property at affiliates with a relatively low corporate tax rate using panel data on european mnes and controlling for unobserved time constant heterogeneity between affiliates we find that the lower a subsidiary s corporate tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment this effect is statistically and economically significant even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern

repatriation taxes repatriation strategies and multinational financial policy abstract several investment repatriation strategies are added to the standard model of a multinational in which an affiliate is located in a low tax country and is limited to two alternatives repatriating taxable dividends to the parent or investing in its own real operations in our model affiliates can invest in passive assets which the parent can borrow against or in related affiliates which can be used as vehicles for tax favored repatriations we show analytically how the availability of alternative strategies can effect real investment throughout the worldwide corporation we use firm level data for us multinationals to test for the importance of alternative strategies the evidence is generally consistent with the theory particularly the strategies using related affiliates

international taxation and multinational firm location decisions using a large international firm level data set we examine the separate effects of host and additional parent country taxation on the location decisions of multinational firms both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries the impact of parent country taxation is estimated to be sizeable consistent with its international discriminatory nature our results show that international double taxation by the parent country despite the general possibility of deferral of taxation until income repatriation is instrumental in shaping the structure of multinational enterprise

accumulation of capital and the foundation of the tendency of the rate of profit to fall especially since n okishio 1961 the theory of the tendency of the rate of profit to fall is controversial in marxist economics because the microeconomic foundations for it seem inadequate the okishian argument is based on a comparative static equilibrium approach it is indicated how within a dynamic disequilibrium framework of capital stratification these foundations may well be provided the rate of profit for innovating capitals may then rise while that for the economy as a whole may fall nevertheless tendencies are not trends the tendency of the rate of profit to fall seems to be manifest cyclically interconnected with other tendencies of accumulation copyright 1991 by oxford university press

a theory of infrastructure led development abstract this paper proposes a theory of long run development based on public infrastructure as the engine of growth the government in addition to investing in infrastructure spends on health services which in turn raise labor productivity and lower the rate of time preference infrastructure affects the production of both commodities and health services as a result of network effects the degree of efficiency of infrastructure is nonlinearly related to the stock of public capital itself provided that governance is adequate enough to ensure a sufficient degree of efficiency of public investment an increase in the share of spending on infrastructure financed by a cut in unproductive expenditure or foreign grants may facilitate the shift from a low growth equilibrium characterized by low productivity and low savings to a high growth steady state

immobilizing corporate income shifting should it be safe to strip in the harbor abstract many subsidiaries can deduct interest payments on internal debt from their taxable income by issuing internal debt from a tax haven multinationals can shift income out of host countries through the interest rates they charge and the amount of internal debt they issue we show that from a welfare perspective thin capitalization rules that restrict the amount of debt for which interest is tax deductible safe harbor rules are inferior to rules that limit the ratio of debt interest to pre tax earnings earnings stripping rules even if a safe harbor rule is used in conjunction with an earnings stripping rule

capital market integration and fiscal sustainability abstract by constructing a two country endogenous growth model with a debt financing government this paper studies the relationship between the sustainability of public finance and increases in inter regional factor mobility to this end it identifies the minimum tax rate that ensures fiscal sustainability against the backdrop of capital tax competition and studies whether competition for mobile capital lowers or improves fiscal sustainability the main findings are as follows i when countries are symmetric increasing capital flows promotes economic growth through the expansion of romer type knowledge spillovers resulting in increased fiscal sustainability in all countries and ii when a marked difference exists between countries tax competition caused by capital movements might lower fiscal sustainability in a country with abundant capital and large outstanding debt

do complicated tax systems prevent foreign direct investment the negative relationship between tax rates and fdi is well known this paper looks at how complexity of the tax system affects fdi fulfilling tax requirements can be time consuming and this implies a cost for more complex tax systems alternatively complexity may provide opportunities to reduce the overall tax bill we find that measures of tax complexity have a significant inhibiting effect on the presence of fdi for a country pair but have little impact on the level of fdi flows a 10 reduction in tax complexity is comparable to a one percentage point reduction in effective corporate tax rates

technical change and the profit rate a simple proof of the okishio theorem this note presents a simple geometrical proof of okishio s celebrated theorem on the falling rate of profit okishio 1961 my intent is simply to clarify how okishio s theorem works i will thus refrain from comment on the general debate on the falling rate of profit in marxian economics on the limits of the general linear model used here or on the importance and range of applicability of okishio s contribution to those unfamiliar with the general linear model and the frobenius theorems used here i recommend reference to brody 1970 or pasinetti 1977 the essential economic assumptions underlying the following proof are that there are no scarce non produced means of production no land that each industry produces a single product no joint products that labour is homogeneous and that there are no fixed capital goods the period of production of all goods and the turnover time of all capital goods is one period these are okishio s assumptions recent contributions those of roemer 1979 for example have generalized okishio s result somewhat using the usual notation i will let

why countries differ in thin capitalization rules the role of financial development abstract the purpose of thin capitalization rules is to limit multinational firms possibilities of engaging in tax planning via debt shifting this paper analyzes the optimal design of thin capitalization rules in the presence of financial frictions when a host country in the first stage chooses the type of thin capitalization rule and then in the second stage decides about the strictness we show that welfare under a safe haven rule is higher than under an earnings stripping rule if firms are not able to manipulate the interest rate on internal loans welfare however can be higher under an earnings stripping rule if firms are able to manipulate the interest rate on internal loans we also show that the optimal level of internal interest deductions decreases with the financial development of the host country our results are consistent with countries actual policy choice

an evaluation of alternative measures of corporate tax rates abstract this paper examines the ability of financial statement measures of average and marginal tax rates mtr to capture tax attributes utilizing firm level tax and financial data the results suggest commonly used average tax rate measures provide little insight about statutory tax burdens and may introduce substantial bias into analyses of tax incidence financial statement based proxies for mtr particularly those based on simulation methods are found to perform well in estimating current year tax rates both current year and present value mtr are found to be highly correlated with an easily constructed binary proxy of firms tax status

tax competition as a cause of falling corporate income tax rates a survey of empirical literature since the mid 1980s tax rates on corporate income have declined in most industrialized countries tax competition between countries for mobile capital has frequently been mentioned as an explanation for this development a vast empirical literature dealing with tax competition for mobile capital has emerged this paper categorizes and summarizes the existing empirical studies on this issue particular focus is placed on the isolation of the substantive implications the quantitative study outcomes convey given the empirical evidence surveyed it appears that tax rates indeed decline due to tax competition between countries and in particular due to competition for profits in addition to summarizing the substantive implications of the existing empirical literature the paper addresses the question of whether the existing studies can convincingly isolate tax competition as a driver of falling corporate income tax rates

who bears the burden of international taxation evidence from cross border m as cross border m as can trigger additional taxation of the target s income in the form of non resident dividend withholding taxes and acquirer country corporate income taxation this paper finds that this additional international taxation is fully capitalized into lower takeover premiums in contrast acquirer excess stock market returns around the bid announcement date do not appear to reflect additional taxation of the target s income these findings suggest that international taxation is considered to be burdensome and that the incidence of this taxation is primarily on target firm shareholders

the determinants of foreign direct investment in transition economies a meta analysis in this paper we conduct a meta analysis of studies that empirically examine the relationship between economic transformation and foreign direct investment fdi performance in central and eastern europe and the former soviet union over the past quarter century more specifically we synthesise the empirical evidence reported in previous studies that deal with the determinants of fdi in transition economies focusing on the impacts of transition factors we also perform meta regression analysis to specify determinant factors of the heterogeneity among the relevant studies and the presence of publication selection bias we find that the existing literature reports a statistically significant non zero effect as a whole and a genuine effect is confirmed for some fdi determinants beyond the publication selection bias

fdi and taxation a meta study despite the continuing political interest in the usefulness of tax competition and tax coordination as well as the wealth of theoretical analyses it still remains open whether or when tax competition is harmful moreover the influence of tax differentials on multinationals decisions is still insufficiently analyzed thus economists have increasingly resorted to empirical analysis in order to gain insights on the elasticity of fdi with respect to company taxation as a result the empirical literature on taxation and international capital flows has grown to a similar abundance during the last 25 years as the respective theoretical literature its heterogeneity leads to a rising need for concise reviews on the existing empirical evidence in this paper we extend former meta analyses on fdi and taxation in three ways first we add the most recent publications unconsidered in meta analyses up to date second we apply a different methodology by using a broad set of meta regression estimators and explicitly discuss which one is most suitable for application to our meta data third we address some important issues in research on fdi and taxation to the clarification of which meta analysis can make valuable contributions these issues are mainly the influence of variables which might moderate effects of tax differentials e g public spending the implications of using aggregate fdi data as opposed to firm level information on measured tax effects the implications of bilateral effective tax rates and the possible presence of publication bias in primary research

foreign ownership and corporate income taxation an empirical evaluation abstract foreign ownership allows countries to effectively export part of their corporate tax burden hence countries with high foreign ownership are expected to impose relatively high corporate taxes the findings of this paper suggest that there indeed is an economically significant positive relationship between foreign ownership and tax burdens in europe already significant foreign ownership levels in europe offer an explanation for the absence of a race to the bottom in corporate tax levels

corporate taxation in the oecd in a wider context against the background of increased globalisation statutory corporate tax rates have shown a clear downward trend over the last two decades the sharp decline in these rates was accompanied by substantial tax base broadening and a comparable reduction in personal income tax rates only until the early 1990s this suggests that corporate tax competition is of increasing importance so far corporate tax revenues remain fairly stable but an analysis of corporate taxation in the context of the overall tax systems shows that a substantial shift towards value added taxes has taken place while the trends so far have been driven by smaller european countries recent tax reforms indicate that increasing tax competition is inducing a shift towards consumption even for larger economies

cross jurisdictional income shifting and earnings valuation this research investigates the extent to which u s multinational enterprises mnes engage in tax motivated income shifting between the u s and foreign jurisdictions and whether investors differentially capitalize shifted income based on its true source or its reported source we find evidence that u s mnes facing foreign tax rates that on average exceed the u s statutory tax rate shift taxable income into the united states and that investors recognize firms income shifting patterns when valuing the foreign versus domestic components of reported earnings we examine u s multinational manufacturing companies from 1984 to 1992 to determine the cross sectional relation between firm level foreign profit margins and average foreign tax rates if u s mnes respond to high low foreign tax rates by shifting income into out of the united states then ceteris paribus we expect a negative relation between foreign profit margins and average foreign tax rates in addition

tax incentives and job creation in the tourism sector of brazil s sudene area summary in recent decades a significant number of developing countries have implemented fiscal incentives programs for the tourism industry as part of their regional development policies the main objective of these programs is to increase local investment and employment as tourism activities are labor intensive little evidence is available however to assess the effect of these policies on job creation in emerging markets in this paper we analyze a program of fiscal incentives introduced by the brazilian federal government in the sudene area in 2002 and in which tourism firms were eligible to participate through a difference in difference estimation we compare the change in the logarithm of local employment in the sudene municipalities before and after 2002 to the change in the same outcome in a group of municipalities that were not affected by the program although our empirical analysis does not measure the efficiency of a similar fiscal policy it is the first one in the literature to show its effectiveness it provides evidence that the fiscal incentives led to a substantial increase in tourism employment in the sudene area we find that over the period 2002 09 municipal tourism employment was on average 30 higher than in the absence of the intervention this result is robust and is not the consequence of either displacement effects or job destruction in neighboring municipalities that had not been targeted by the tax incentives we finally discuss some limitations of our analysis that might open avenues for future research in the field

the impact of u s tax reform on foreign direct investment in the united states abstract this study empirically examines how taxes shape foreign direct investment and finds that increased taxes spur inward foreign investment this finding conforms with theories that recognize that foreign investor response is critically shaped by the tax provisions faced by the foreign investor in his home country and by the effects of tax reform on pre tax asset returns we demonstrate that average tax rates may better proxy tax effects than do effective tax rates our findings are more robust than previous results since we utilize the entire 1980s tax history consider a fuller set of industry distinctions and estimate the tax responsiveness in the context of exchange rate fluctuations

business taxation in a globalized world this paper addresses broad issues concerning taxes on company profit in a globalized world in which companies capital and profit can move easily between countries it considers reasons for national taxation of company profit in such a world and reviews the development of such taxes in the oecd the role played by tax havens is discussed and evidence on the responsiveness of companies to differences in taxation across countries is presented a central issue is the allocation of taxable profit between countries existing practice has no clear rationale recent proposals for fundamental reform in the eu are discussed

the location of overseas production and production for export by u s multinational firms abstract the location of overseas manufacturing production is influenced by common factors that operate in all industries notably proximity to the united states and to other markets within industries opposites attract low wage and low capital intensity parents choose high wage countries production for export is attracted by large internal markets in host countries economies of scale in production presumably make large markets economical as export bases another factor is high trade propensities of host countries u s firms tend to export from high wage countries but labor cost is not in general a major influence on the location of export production

cross border loss offset can fuel tax competition following recent court rulings cross border loss compensation for multinational firms has become a major policy issue in europe this paper analyzes the effects of introducing a coordinated cross border tax relief in a setting where multinational firms choose the size of a risky investment and host countries non cooperatively choose tax rates we show that coordinated cross border loss compensation may intensify tax competition when following current international practice the parent firm s home country bases the tax rebate for a loss making subsidiary on its own tax rate in equilibrium tax revenue losses may thus be even higher than is implied by the direct effect of the reform in contrast tax competition is mitigated when the home country bases its loss relief on the tax rate in the subsidiary s host country

corporate tax elasticities a reader s guide to empirical findings corporate taxes exert a variety of effects on business behaviour a wealth of empirical evidence assesses the magnitude of these behavioural margins of taxation this article offers an up to date review and aims to provide common ground by computing for each distortion the semi elasticity of the corporate tax base we pay particular attention to international investment where it is not a priory clear whether marginal investment decisions or discrete locations are most important using anextension of the meta analysis of de mooij and ederveen 2003 we explore the extent to which existing studies reveal differences in effect size between the intensive and extensive margins of international investment

who cares about corporate taxation asymmetric tax effects on outbound fdi this paper investigates whether different types of fdi are asymmetrically affected by corporate taxation we classify investment projects according to several characteristics such as the general motivation for fdi the type of business activity or the degree of internationalisation of the multinational firm subsequently we analyse how local taxes influence the number of german outbound investments in european countries the analysis reveals significant asymmetries with regard to tax effects vertically integrated investments are more sensitive to host country taxation than horizontal fdi larger tax rate elasticities are estimated if business activities are considered highly mobile and in accordance with profit shifting considerations subsidiaries of more internationalised companies are less tax responsive to host country taxation

unobserved tax avoidance and the tax elasticity of fdi abstract this paper investigates the tax responsiveness of multinational firms investment decisions in foreign countries distinguishing firms that are able to avoid taxes avoiders from those that are not non avoiders from a theoretical point of view the tax responsiveness of firms crucially depends on this distinction empirically however a firm s ability to avoid profit taxes is inherently unobservable to the researcher to address this problem we use a finite mixture modeling approach which allows us to distinguish avoiders from non avoiders stochastically from a mixture of distributions of the two types of firms using panel data on the universe of foreign affiliates of german multinational firms over the years 1999 2010 we find that investments of tax avoiders do not respond to host country profit taxes at all while those of non avoiders do about 11 of the affiliates are estimated to be able to avoid taxes these investments account for about 58 of the stock of foreign fixed assets held by german multinational firms abroad a one percentage point increase in the statutory corporate profit tax rate of a host country is found to reduce the fixed assets of non avoiders in that host country by 0 81

greenfield versus merger acquisition fdi same wine different bottles relying on a large foreign direct investment fdi transaction level dataset unique both in terms of disaggregation and time and country coverage this paper examines patterns in greenfield gf versus merger acquisition ma investment although both are found to seek out large markets with low international barriers important differences emerge ma is more affected by geographic and cultural barriers and exhibits opportunistic behaviours as it is more sensitive to short run changes such as a currency crisis on the other hand gf is relatively driven by long run factors such as origincountry technological and institutional development or comparative advantage these empirical facts are consistent with the conceptual distinction made between these two modes i e ma involves transfer of ownership for integration or arbitrage reasons while gf relies on firms own capacities which are linked to the origin countries attributes they also suggest that gf and ma are likely to respond differently to policies intended to attract fdi

multinational firms and government revenues abstract underinvoicing of intrafirm exports by a multinational firm mnf can increase the exporting country s revenue overinvoicing can increase the importing country s revenue when its tariff rate is higher than its profit tax rate and both countries revenues may change in the same direction transfer pricing increases the mnf s global tax burden unambiguously when the home profit tax rate is not smaller than the foreign and the mnf overinvoices and can increase it in other cases this last result arises when increase in the level of intrafirm trade which accompanies transfer pricing and or non wholly owned subsidiary are considered

the location of financial sector fdi tax and regulation policy abstract this paper analyzes how corporate taxation and regulatory requirements affect the location of financial sector fdi we use novel information on new financial services entities established by multinational firms in 83 host countries we find a negative effect of host country taxes on the probability of choosing a particular host location we can also confirm a significant influence of the regulatory environment for example stricter equity capital requirements negatively affect location probabilities our empirical approach allows us to provide new insight in how a policy measure of a given country affects other countries by estimating cross country tax and regulation elasticities

repatriation taxes and outbound m as repatriation taxes reduce the competitiveness of multinational firms from tax credit countries when bidding for targets in low tax countries this comparative disadvantage with respect to bidders from exemption countries violates ownership neutrality which results in production inefficiencies due to second best ownership structures this paper empirically estimates the magnitude of these effects the abolishment of repatriation taxes in japan and in the u k in 2009 has increased the number of acquisitions abroad by japanese and british firms by 16 1 and 1 6 respectively a similar policy switch in the u s is simulated to increase the number of u s cross border acquisition by 11 0 the yearly gain in efficiency is estimated to be 108 9 million dollar due to the japanese reform and 3 9 million dollar due to the u k reform simulating such a reform for the u s results in a yearly efficiency gain of 537 0 million dollar

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

the rate of surplus value in the postwar us economy a critique of weisskopf s estimates the rate of surplus value is one of the three key variables in marx s theory of capitalist crises along with the rate of profit and the composition of capital marx expected a secular tendency for the rate of surplus value to increase owing to the rise in labour productivity under capitalism in marx s theory the necessary condition for an increase in the rate of surplus value is that the productivity of labour increases faster than the average real wage marx argued that in general this condition would be fulfilled because of downward pressure on wages exerted by a large and growing reserve army of unem ployed workers marx 1977 chs 17 and 25 moseley 1982 ch 4 marx argued further that this increase in the rate of surplus value would delay but not prevent the tendency of the rate of profit to fall owing to a rise in the composition of capital marx 1982 part 3 weisskopf 1979 argued that the profit share of total income is a reasonable proxy for marx s concept of the rate of surplus value p 343 he estimated the profit share in the non financial corporate business nfcb sector of the us economy over the period 1949 1975 1 showing a secular decline of 28 over the period of study p 351 table 2 contrary to marx s expectation of a secular increase in the rate of surplus value 2 however there is a fundamental theoretical problem with weisskopf s estimates namely that they do not take into account marx s distinction between productive labour and unproductive labour a number of authors have argued that marx s distinction between productive labour and unproductive labour is an integral part of his theory of value and surplus value and that his concepts of surplus value and variable capital the

why the european union should adopt formula apportionment with a sales factor using a two country tax competition model with a multinational enterprise mne this paper addresses the question of whether the european union should replace separate accounting sa in corporate income taxation by formula apportionment fa and if so which apportionment factors should be used our main result is that fa with a sales factor may mitigate or even eliminate fiscal externalities caused by the countries tax policy hence our analysis provides a microfoundation for the sales apportionment factor in an empirical calibration to the eu 15 we show that the transition from sa to fa with a sales only formula raises average tax rates by 2 and average tax revenues by 1 billion euros or 0 1 of gdp these effects result in an increase of welfare