The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments
28 Pages Posted: 14 Jun 2010
Date Written: June 14, 2010
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.
Keywords: FDI, corporate taxation, location, M&A, Greenfield
JEL Classification: H25, H73, F23
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