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The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments

Author

Listed:
  • Shafik Hebous
  • Martin Ruf
  • Alfons J. Weichenrieder
  • Alfons Weichenrieder

Abstract

In this study, we estimate the impacts of differences in international tax rates on the probability of choosing a location for an affiliate of a multinational firm. In particular, we distinguish between the tax sensitivity of Greenfield and M&A investments. Based on a novel firm-level dataset on German outbound FDI, we find evidence that location decisions of M&A investments are less sensitive to differences in tax rates than location decisions of Greenfield investments. According to our logit estimates, and after controlling for firm and country-specific characteristics, the tax elasticity for Greenfield investments is negative and in absolute value significantly larger than that associated with M&A investments. This finding is consistent with a (partial) capitalisation of taxes in the acquisition price when the FDI project takes the form of M&A.

Suggested Citation

  • Shafik Hebous & Martin Ruf & Alfons J. Weichenrieder & Alfons Weichenrieder, 2010. "The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments," CESifo Working Paper Series 3076, CESifo.
    • Handle: RePEc:ces:ceswps:_3076
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    Cited by:

    1. Keller, Sara & Schanz, Deborah, 2013. "Measuring tax attractiveness across countries," arqus Discussion Papers in Quantitative Tax Research 143, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. Sylwia Bialek & Alfons J. Weichenrieder, 2021. "Do Stringent Environmental Policies Deter FDI? M&A versus Greenfield," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 80(3), pages 603-636, November.
    3. Liberini, Federica, 2014. "Corporate Taxes and the Growth of the Firm," The Warwick Economics Research Paper Series (TWERPS) 1042, University of Warwick, Department of Economics.
    4. Devereux, Michael P. & Fuest, Clemens & Lockwood, Ben, 2015. "The taxation of foreign profits: A unified view," Journal of Public Economics, Elsevier, vol. 125(C), pages 83-97.
    5. Keller, Sara & Schanz, Deborah, 2013. "Tax attractiveness and the location of German-controlled subsidiaries," arqus Discussion Papers in Quantitative Tax Research 142, arqus - Arbeitskreis Quantitative Steuerlehre.
    6. Giovanni Cerulli & Bianca Potì & Raffaele Spallone, 2018. "The impact of fiscal relief on multinationals business R&D investments: a cross-country analysis," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 649-675, August.
    7. Arulampalam, Wiji & Devereux, Michael P. & Liberini, Federica, 2019. "Taxes and the location of targets," Journal of Public Economics, Elsevier, vol. 176(C), pages 161-178.
    8. Shafik Hebous, 2014. "Money at the Docks of Tax Havens: A Guide," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 458-485, September.
    9. TRANDAFIR, Adina, 2019. "http://anale.spiruharet.ro/index.php/economics/article/view/1936/pdf," Annals of Spiru Haret University, Economic Series, Universitatea Spiru Haret, vol. 19(3), pages 129-138.
    10. Peter Egger & Michael Stimmelmayr, 2017. "Taxation and the Multinational Firm," CESifo Working Paper Series 6384, CESifo.
    11. Ulrich Schreiber, 2013. "International Company Taxation," Springer Texts in Business and Economics, Springer, edition 127, number 978-3-642-36306-1, June.

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    More about this item

    Keywords

    FDI; corporate taxation; location; M&A; Greenfield;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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