what determines bits abstract similar to bilateral or regional preferential trade agreements ptas bilateral investment treaties bits have proliferated over the past 50 years the purpose of this study is to provide the first systematic empirical analysis of the economic determinants of bits and of the likelihood of bits between pairs of countries using a qualitative choice model in a manner consistent with explaining ptas we develop the econometric specification for explaining the two based upon a general equilibrium model of world trade and foreign direct investment with three factors two products and trade and investment costs among multiple countries in the presence of national and multinational firms the empirical model for bits and ptas is bivariate in nature and supports a set of hypotheses drawn from the general equilibrium model using the preferred empirical model for a sample of 12 880 country pairs in the year 2000 we predict correctly 88 of all pairs with a bit and a pta 81 with a bit but no pta and 84 with a pta but no bit

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

the comparison between destination and origin principles under imperfect competition abstract especially but not only in the european union closer economic integration is putting increasing pressure on the destination principle under which goods entering international trade are normally taxed this has raised the possibility of switching to the origin principle which dispenses with problematic border tax adjustments this paper compares destination and origin principles under conditions of imperfect competition previous analyses which have considered only the competitive case have led to a qualified presumption in favour of the destination principle a series of results are established here for both cooperative and non cooperative tax setting which challenge that presumption under imperfect competition

foreign owned firms around the world a comparative analysis of wages and employment at the micro level abstract this paper provides the first microeconomic cross country analysis of the effects of foreign ownership on wages employment and worker turnover rates using firm level and linked worker firm data we apply a standardised methodology for three developed germany portugal uk and two emerging economies brazil indonesia we find that wage effects are larger in developing countries and that for each country the largest effect on wages comes from workers who move from domestic to foreign firms employment growth after foreign takeover is concentrated in high skill jobs in contrast to widespread fears there is no evidence that wage gains come at the expense of greater job insecurity separation rates actually fall slightly after takeover we conclude that the positive effect of foreign ownership on wages is not primarily driven by its impact on incumbent wages but by its impact on the creation of high wage jobs

taxing across borders tracking personal wealth and corporate profits globalization is making it increasingly easy for corporations to shift profits to low tax countries modern technology has also made it simpler for wealthy individuals to move funds to undeclared bank accounts in offshore tax havens both issues have featured prominently in the news and global economic debates since the financial crisis but the arguments tend to be based on relatively little empirical evidence measuring the costs of tax havens to foreign governments is fraught with difficulties however balance of payments data and corporate filings show that us companies are shifting profits to bermuda luxembourg and similar countries on a large and growing scale about 20 percent of all us corporate profits are now booked in such havens a tenfold increase since the 1980s this profit shifting is typically done within the letter of the law and thus would be best described as tax avoidance rather than fraud i attempt to quantify its cost for government coffers by taking a fresh look at the most recent macroeconomic evidence and combining it in a systematic manner over the last 15 years the effective corporate tax rate of us companies has declined from 30 to 20 percent and about two thirds of this decline can be attributed to increased profit shifting to low tax jurisdictions wealthy individuals too use tax havens sometimes legally to benefit from banking services not available in their home country and sometimes illegally to evade taxes a number of changes have sought with some success to curb that form of tax evasion over the last years yet the available evidence from switzerland and

taxing foreign profits with international mergers and acquisitions a large part of border crossing investment takes the form of international mergers and acquisitions in this article we ask how optimal repatriation tax systems look like in a world where investment involves a change of ownership instead of a reallocation of real capital we find that the standard results of international taxation do not carry over to the case of international mergers and acquisitions the deduction system is no longer optimal from a national perspective and the foreign tax credit system fails to ensure global optimality the tax exemption system is optimal if ownership advantage is a public good within the multinational firm however the cross border cash flow tax system dominates the exemption system in terms of optimality properties

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

capital income and profit taxation with foreign ownership of firms abstract this paper establishes optimal rules for capital income and profits taxation in the open economy with or without foreign ownership of domestic firms we show that if there are constraints on the feasibility of profits taxation both saving and investment taxes generally enter the optimal tax package if instead profits can be fully taxed then source based investment taxes vanish if domestic firms are in part owned by foreigners then source based investment taxes can be used to shift income away from these to domestic citizens and they may even be used to finance lump sum transfers to domestic residents

in praise of tax havens international tax planning and foreign direct investment abstract the multinationalization of corporate investment in recent years has given rise to a number of international tax avoidance schemes that may be eroding tax revenues in industrialized countries but which may also reduce tax burdens on mobile capital and so facilitate investment both the welfare effects of and the optimal response to international tax planning are therefore ambiguous evaluating these factors in a simple general equilibrium model we find that citizens of high tax countries benefit from some tax planning paradoxically if tax rates are not too high an increase in tax planning activity causes a rise in optimal corporate tax rates and a decline in multinational investment thus fears of a race to the bottom in corporate tax rates may be misplaced

competition for firms in an oligopolistic industry the impact of economic integration we set up a model of generalised oligopoly where two countries of different size compete for an exogenous but variable number of identical firms the model combines a desire by national governments to attract internationally mobile firms with the existence of location rents that arise even in a symmetric equilibrium where firms are dispersed as economic integration proceeds equilibrium taxes initially decline but then rise again as trade costs fall even further a range of trade costs is identified where economic integration raises the welfare of the small country but lowers welfare in the large country

bidding for firms recently toyota sought a plant location in the united states the 800 million plant will employ 3000 workers and numerous states offered toyota generous investment incentives hoping this would induce toyota to select their state the commonwealth of kentucky won this competition but the price was high the present value of the payments exceeds 125 million the payment of investment incentives for the toyota plant is not unique in 1976 pennsylvania paid 75 million to attract a volkswagen plan nissan honda and mazda received generous investment incentives when locating plants in the united states and this bidding is not limited to states to attract the headquarters of the presbyterian church usa with its 1300 jobs and 38 million annual payroll civic leaders in louisville kentucky offered the church a warehouse and 6 2 million for renovation of the structure bidding the church away from kansas city missouri in this paper we contend that this competition may result from the average cost pricing of publicly provided goods and services 2 when the marginal cost of providing a firm and its workers with public services is less than the tax revenue they generate a government may offer the firm subsidies that reduce the distortions the average cost pricing of the public service creates thus this competition for industry is not a zero sum game where the subsidies are only transfers from the government to the firm rather these subsidies may facilitate the efficient location of industry

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

the effect of the tax reform act of 1986 on the location of assets in financial services firms this paper examines the effects of the tax reform act of 1986 on the international location decisions of u s financial services firms the act included rule changes that made it substantially more difficult for u s firms to defer u s taxes on overseas financial services income held in low tax jurisdictions we use information from the tax returns of u s corporations to examine how local taxes affect the allocation of financial assets held abroad by financial services firms we find that before the act the location of reported assets in financial subsidiaries was responsive to differences in host country tax rates across jurisdictions however after the act differences in host country tax rates no longer explain the distribution of assets held in financial services subsidiaries abroad our results suggest that the tightening of the anti deferral provisions applicable to financial services companies has been successful in diminishing the effect of host country income taxes on asset location decisions

risk financial stability and fdi all foreign direct investment fdi involves risk augmenting the international finance literature we assess the effects of financial system risk on fdi trends through considering both origin and host country effects motivated by the sovereign debt crisis and based on a dataset including bilateral fdi holdings this paper investigates the implications of sovereign and bank related risk on fdi in the eurozone strikingly we find that in terms of banking risk it is only that encountered in the country of origin that has an impact on fdi choices however we find that sovereign risk in both origin and host countries have effects as a corollary we suggest that although poor financial discipline by host governments has been widely blamed as the primary factor likely to frighten off overseas investors it is amongst fdi supplying nations that the effects of sovereign yields seem most pronounced policymakers in countries seeking to attract fdi should not only be attentive to domestic conditions but also be aware of the financing environment that multinational enterprises mnes encounter in their home countries and how this might impact on their choices

the taxation of passive foreign investment lessons from german experience the paper evaluates the working of german cfc rules that restrict the use of foreign subsidiaries located in low tax countries to shelter passive investment income from home taxation while passive investments make up a significant fraction of german outbound fdi we find that german cfc rules are quite effective in restricting investments in low tax jurisdictions we find evidence that the german 2001 tax reform which unilaterally introduced exemption of passive income in medium and high tax countries has led to some shifting of passive assets into countries for which the exemption was previously limited ce texte evalue l impact des regles imposees aux succursales a l etranger des societes allemandes regles qui limitent l usage de filiales etrangeres localisees dans des pays a fiscalite legere pour mettre les revenus d investissement passif a l abri de la fiscalite dans le pays d origine ces investissements passifs constituent une fraction significative de l investissement direct a l etranger des allemands et on decouvre que les regles allemandes sont tres efficaces pour restreindre les investissements dans des economies a fiscalite legere les resultats montrent que la reforme fiscale allemande de 2001 qui a unilateralement introduit une exemption du revenu passif dans les pays a fiscalite medium or lourde a entraine un deplacement des actifs passifs vers les pays pour lesquels l exemption etait limitee auparavant

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

the impact of controlled foreign company legislation on real investments abroad a multi dimensional regression discontinuity design controlled foreign company cfc rules are frequently imposed by countries as part of their anti tax avoidance legislation this paper aims at quantifying the impact of the german cfc rule on the universe of foreign investments held by german multinational firms the german cfc legislation gives rise to a multi dimensional regression discontinuity design which allows us to estimate local average treatment effects along the dimensions determining treatment our results suggest a significant and economically large impact of the cfc legislation on multinationals real activity abroad we also find evidence of some heterogeneity in estimated treatment effects according to parametric as well as nonparametric estimates

energy requirements of households in brazil abstract in this study we determine the total direct plus indirect energy requirements of a given set of brazilian households we use a generalized input output model in order to calculate the energy embodied in goods and services purchased by households of different income level in 11 capital cities of brazil our results show that on average the total energy intensity of household expenditure increases with income level although there is a considerable spread in energy intensities within income classes as well as disparities between regions of the country the total yearly average energy requirement per household in brazil in 1995 96 was 173 6 gj 61 of which was indirect with 32 8 gj for the lower income level 66 of which was indirect and 602 2 gj for the higher income level 62 of which was indirect of this total average energy requirement 76 was required for only three consumption categories utilities 31 mobility 28 and shelter 17 this analysis calls for the attention that has to be given not only to the direct energy consumption as motor fuels and electricity for example but also to the consumption categories that encompass an important part of the indirect energy requirement of households in capital cities in brazil

computing the optimal replenishment policy for inventory systems with random discount opportunities the paper considers the optimal control of a single item continuous review inventory system with random demand and discount opportunities items can always be purchased with the regular order setup and variable costs however when a discount opportunity occurs they can also be purchased with a different setup cost and a lower variable cost demands for individual items and discount opportunities occur according to independent poisson processes the paper proposes an algorithm to compute the parameters of the optimal replenishment policy which has been shown to be an r r d d policy wherer

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

double tax discrimination to attract fdi and fight profit shifting the role of cfc rules abstract governments worldwide use targeted tax policies to trade off the gains from increased fdi against the cost of excessive profit shifting by multinational firms we show that nationally optimal tax systems generally incorporate both thin capitalization rules which tax discriminate between purely national and multinational firms and controlled foreign company cfc rules which discriminate between home based and foreign based multinationals in the non cooperative policy equilibrium both thin capitalization rules and cfc rules are set more lenient than if tax policies were chosen cooperatively implying an excessive tax discrimination in favor of multinationals we also analyze the effects of reduced transaction costs for fdi and reduced costs for debt shifting on the optimal policy mix our results correspond to the observed developments of anti avoidance rules in oecd countries

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

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