corporate income tax competition double taxation treaties and foreign direct investment abstract in the presence of international capital mobility foreign direct investment is influenced by corporate income tax rates and the rules of how taxes paid in the host country are treated at home in this paper the exemption credit and deduction methods are considered as tax rules tax competition is modeled as a non cooperative game with respect to both corporate tax rates and the form of double taxation relief the subgame perfect equilibrium is shown to be independent of the tax rules since capital is inefficiently allocated the feasibility and the content of a cooperative contract between governments are analyzed it is argued that only the credit method requires neither compensatory payments nor fully harmonized tax rates this is consistent with the observation that tax credits are very often adopted in double taxation treaties

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

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

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

empirical asymmetries in foreign direct investment and taxation abstract this paper assesses the sensitivity of the operations of multinational corporations mncs to host country taxation the empirical analysis is based on two different measures of mnc activity by u s majority owned foreign affiliates panel data for aggregate real gross product in manufacturing that originates in a given host country and micro data for a single year regarding the likelihood of a firm locating in a given host country the empirical estimates indicate that investment geared toward export markets rather than the domestic market is particularly sensitive to host country taxation that this sensitivity appears to be greater in developing countries than developed countries and that it is becoming greater over time

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

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

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

on the genesis of multinational foreign affiliate networks multinational enterprises mnes develop their networks of foreign affiliates gradually over time instead of exploring all profitable opportunities immediately they first establish themselves in their home countries and then enter new markets stepwise we argue that this behavior is driven by uncertainty concerning a firm s success in new markets after entry the firm collects information which is used to update its beliefs about its performance in a market as conditions in different markets are correlated the information gathered in one of them can also be used to update beliefs elsewhere with the degree of correlation depending on issues such as the geographical or cultural distance between markets this correlated learning may render it optimal to enter markets sequentially investment in market a is only followed by entry in market b if the firm was sufficiently successful in a the prediction that firms start their expansion in markets that are closer to their home base and then proceed step by step is supported by our empirical analysis which features the universe of foreign affiliates held by german multinationals based on a rich set of benchmark estimates and sensitivity checks we identify correlated learning across markets beyond alternative explanations as a key driver of gradualism in the genesis of mnes foreign affiliate networks

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

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

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

fiscal competition and public debt the existing theoretical literature on fiscal competition has to a large extent ignored the role of government debt as a determinant of taxes and productive public spending we develop a simple model of fiscal competition with government borrowing if a default on government debt is no option initial debt levels play no role in fiscal competition this neutrality result is overturned when a default is possible a government that is constrained in its borrowing due to a possible default responds optimally by lowering spending on durable public infrastructure which in turn induces more aggressive tax setting a rise in exogenous firm mobility reinforces the link between legacy debt and fiscal competition our model may help explain the observation that highly indebted countries in europe have decreased corporate tax rates over proportionally our model may also be useful for evaluating decentralization reforms in which the power to tax firms is devolved to lower levels of overnments which differ in their initial debt levels

the oecd model tax treaty tax competition and two way capital flows model tax treaties do not require tax rate coordination but do require that either credits or exemptions be applied to repatriated earnings this contradicts recent models with a single capital exporter where deductions are most efficient i incorporate the fact that capital flows are typically bilateral with symmetric countries credits by both is the unique and efficient treaty equilibrium this equilibrium weakly dominates the nontreaty equilibrium with asymmetric countries the treaty need not offer improvements without tax harmonization with harmonization it is always possible to reach efficient capital allocations while increasing both countries welfares only if neither uses deductions

procedural and distributive fairness determinants of overall price fairness the present research isolates the fairness assessment of the process used by the retailer to set a price as well as the distributive fairness of the price compared to the price that others are offered and examines the combined effect of procedural fairness and distributive fairness on overall price fairness two experimental studies examine procedural and distributive fairness effects on overall price fairness in study 1 procedural fairness and distributive fairness are manipulated and found to interact to bring about overall price fairness in study 2 suspicion toward the seller is found to mediate the relationship between procedural fairness and overall price fairness when the price is disadvantageous

tax and the city a theory of local tax competition abstract in this paper we propose a novel theoretical model of tax competition at the local level large jurisdictions cities compete both locally with smaller neighbouring communities and interregionally with more distant cities while small jurisdictions hinterlands compete only with other jurisdictions in their neighbourhood the model structure is motivated by recent empirical findings as well as survey results among german mayors the perceived intensity of competition for firms varies considerably between jurisdictions and can mainly be explained by the size and location of the jurisdiction our model predicts contrary to earlier findings for competition between countries or regions that capital taxes of large jurisdictions fall more strongly with increasing interregional competition and may eventually lead to smaller taxes than in small jurisdictions hinterlands are therefore less affected from globalisation than cities we contrast our results with a standard tax competition model in which all jurisdictions compete with all other jurisdictions

price fairness good and service differences and the role of vendor costs prior research suggests that consumers are forgiving of a price increase that is commensurate with increased vendor costs we argue that the perceived fairness of the price increase will also depend on the alignability of the cost and price increases such that alignable increases will be perceived as more acceptable than nonalignable increases moreover we predict that when a cost increase is nonalignable consumers will be more receptive to a service price increase than a goods price increase evidence from a series of experiments supports both predictions

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

preferential trade agreements and tax competition for foreign direct investment abstract this paper examines how free trade agreements and customs unions affect the location of foreign direct investment fdi and social welfare taking into account that governments may adjust taxes and external tariffs to compete for fdi conditions are identified under which a free trade agreement leads to fdi and under which this improves welfare the welfare effect is shown to depend on the relative size of efficiency gains in production and government revenue losses due to tax competition a free trade agreement may fail to induce welfare improving fdi creating a role for a customs union

economic status measures in the health and retirement study variables measuring economic status represent a straightforward but crucial part of round 1 of the health and retirement study hrs in addition to studies focusing directly on the economic well being of this cohort of the population the economic status variables are likely to be inputs into other analyses that focus on retirement and savings behavior on variations in health status on intrafamily transfers and support and on poverty status as a first look at these data this paper has several modest goals to offer a flavor for the major economic status variables on the hrs to indicate some preliminary analysis of the quality of the data and to take a preliminary look at the interrelationships among economic status measures like income and wealth and other important variables such as health status pension rights and health insurance coverage

trade capital mobility and tax competition this paper examines a system of governments national state or local that finance public expenditures with taxes on mobile capital e g a property tax unlike previous research on tax competition explicit consideration is given to the general equilibrium determination of the prices at which goods are traded between regions the analysis identifies inefficiencies in government behavior that are not apparent in models in which the terms of trade are exogenously given capital taxation is shown to create an inefficient distribution of public good outputs across regions accompanied by an inefficient pattern of trade a model is presented in which the chosen levels of public good outputs differ across regions containing identical residents and production possibilities there is a wasteful diversity of public good supplies

match bias in wage gap estimates due to earnings imputation about 30 of workers in the current population survey have earnings imputed wage gap estimates are biased toward zero when the attribute being studied e g union status is not a criterion used to match donors to nonrespondents an expression for match bias is derived in which attenuation equals the sum of match error rates attenuation can be approximated by the proportion with imputed earnings union wage gap estimates with match bias removed are presented for 1973 2001 estimates for recent years are biased downward 5 percentage points bias in gap estimates accompanying other non match criteria public sector industry etc is examined

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

yardstick competition and partial coordination exploring the empirical distribution of local business tax rates abstract this paper explores a striking form of tax policy interdependence that can be observed in the german federation though municipalities enjoy discretion in setting the local business tax rate large fractions of municipalities in some states even the majority set identical tax rates our analysis shows that this tax rate bunching is not the result of federal or state level institutions possible explanations rest on partial coordination and yardstick competition the role of the former is exemplified by the finding that small jurisdictions and jurisdictions sharing the same county are more likely to engage in bunching yardstick competition seems also relevant since jurisdictions for which strategic tax setting should be associated with larger gains and lower cost are in fact more likely to set identical tax rates

suspicion and perceptions of price fairness in times of crisis times of crisis bring about increased demands on businesses as shortages or unexpected but significant business costs are encountered passing on such costs to consumers is a challenge when faced with a retail price increase consumers may rely on cues as to the motive behind the increase such cues can raise suspicion of alternative motive e g taking advantage of the consumer affecting consumers judgments of price fairness this research investigates two triggers of suspicion salience of alternative motives and behavior judged to be out of character for the business results of the two studies within crisis contexts indicate that suspicion is created when alternative motives are salient and when a retailer acts out of character multiple group analyses revealed that suspicion induced negative affect and subsequent perceptions of price fairness when suspicion was present more negative feelings toward the retailer and judgments of price unfairness resulted