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Who Cares about Corporate Taxation? Asymmetric Tax Effects on Outbound FDI

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  • Michael Overesch
  • Georg Wamser

Abstract

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 internationalization of the multinational. Subsequently, we analyze 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 taxrate elasticities are estimated if business activities are considered highly mobile; in accordance with profit-shifting arguments, subsidiaries of more internationalized companies are less tax responsive to host taxation.

Suggested Citation

  • Michael Overesch & Georg Wamser, 2008. "Who Cares about Corporate Taxation? Asymmetric Tax Effects on Outbound FDI," ifo Working Paper Series 59, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:ifowps:_59
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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