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Estimating Bargaining-related Tax Advantages of Multinational Firms

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  • Peter H. Egger
  • Nora M. Strecker
  • Benedikt Zoller-Rydzek

Abstract

Bargaining power may explain the tax differences between multinational and national enterprises beyond MNEs’ profit shifting. Larger firms (mostly MNEs) are more valuable for tax authorities for various reasons. In threatening relocation, larger firms extract greater deductions, resulting in a regressive ETR schedule and lower ETRs for size-related reasons. MNEs face lower relocation costs than NEs, which enhances their bargaining position. Using French firm-level data and entropy balancing, we find that the regressivity of the French tax schedule reduces MNEs’ ETRs by 2.52 percentage points (size effect), while their relocation threat leads to a 3.58 percentage point reduction.

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  • Peter H. Egger & Nora M. Strecker & Benedikt Zoller-Rydzek, 2018. "Estimating Bargaining-related Tax Advantages of Multinational Firms," CESifo Working Paper Series 6979, CESifo.
    • Handle: RePEc:ces:ceswps:_6979
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    2. Dominika Langenmayr & Franz Reiter, 2022. "Trading offshore: evidence on banks’ tax avoidance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(3), pages 797-837, July.
    3. Peter Egger & Michael Stimmelmayr, 2017. "Taxation and the Multinational Firm," CESifo Working Paper Series 6384, CESifo.
    4. Irlacher, Michael & Unger, Florian, 2018. "Effective tax rates, endogenous mark-ups and heterogeneous firms," Economics Letters, Elsevier, vol. 173(C), pages 51-54.
    5. Clemens Fuest & Felix Hugger & Samina Sultan & Jing Xing, 2022. "What drives Chinese overseas M&A investment? Evidence from micro data," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 306-344, February.
    6. Maximilian Todtenhaupt & Johannes Voget, 2021. "International Taxation and Productivity Effects of M&As," CESifo Working Paper Series 8967, CESifo.
    7. Fatica, Serena & Gregori, Wildmer Daniel, 2020. "How much profit shifting do European banks do?," Economic Modelling, Elsevier, vol. 90(C), pages 536-551.
    8. Greil, Stefan & Schwarz, Christian & Stein, Stefan, "undated". "Fairness and the Arm’s Length Principle in a Digital Economy [Fairness und der Fremdvergleichsgrundsatz in der digitalen Ökonomie]," Duesseldorf Working Papers in Applied Management and Economics 42, Duesseldorf University of Applied Sciences.
    9. Vincent Vicard, 2019. "The Exorbitant Privilege of High Tax Countries," Working Papers 2019-06, CEPII research center.
    10. Petr Janský, 2023. "Corporate Effective Tax Rates for Research and Policy," Public Finance Review, , vol. 51(2), pages 171-205, March.
    11. Vincent Vicard, 2023. "Profit Shifting, Returns on Foreign Direct Investments and Investment Income Imbalances," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(2), pages 369-414, June.
    12. Li, Guangzhong & Li, Jie & Zheng, Ying & Egger, Peter H., 2021. "Does property rights protection affect export quality? Evidence from a property law enactment," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 811-832.
    13. Todtenhaupt, Maximilian & Voget, Johannes, 2021. "International taxation and productivity effects of M&As," Journal of International Economics, Elsevier, vol. 131(C).

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    More about this item

    Keywords

    profit taxation; multinational firms; entropy balancing;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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