Tax Competition: Greenfield Investment Versus Mergers and Acquisitions
33 Pages Posted: 11 Mar 2008
Date Written: March 2008
In this paper, we analyze tax competition in a model where investor firms have the choice between two types of investment, greenfield investment and mergers and acquisitions. We show that the coexistence of these two types of investment intensifies tax competition in comparison to the case where there is only greenfield investment. If a specific tax on acquisitions is available, this result changes. Then, tax competition is mitigated compared to the pure greenfield case. The existence of an acquisition tax may even lead to corporate overtaxation.
Keywords: corporate taxation, mergers and acquisitions, tax competition
JEL Classification: H25, F23
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