This paper examines the effects of international differences in labour market conditions on multinational firms’ entry decisions. In particular, we focus on labour market regulations and top personal income taxes and explicitly distinguish between the modes of the new investment. We find that corporate taxes in a potential host country seem more detrimental for Greenfield than for Merger and Acquisitions (M&A). Our results for the effects of personal taxes point into the same direction, but depend on the estimation method and the chosen sample of countries.
We estimate the long-run elasticity of the capital stock with respect to the user cost of capital using two firm-level datasets from Amadeus, which cover 31,740 domestic independent firms and 10,666 subsidiaries of multinational companies in the manufacturing sector from 7 European countries over the period 1999-2007. Consistent with the results based on the industry-level data in Bond and Xing (2010), we find that capital intensity at the firm level is strongly responsive to changes in the tax-adjusted user cost of capital. Our benchmark estimation results remain robust when we deal with short panel issues and the endogeneity of explanatory variables using the Generalised Methods of Moments estimator suggested by Arellano and Bond (1991). Our preliminary investigation suggests that firms with different tax status may respond differently to corporate tax incentives. Furthermore, using a sample of subsidiaries of multinational companies, we do not find multinational companies capital intensity, conditional on their location choice of investment, responds to changes in corporate tax incentives in a different way.
Using consolidated firm-level accounting data for about 3,400 companies in 15 OECD countries from ORBIS (2003-2007), this paper compares the tax burden of companies headquartered in worldwide countries with that of companies headquartered in territorial countries. The tax burden is measured by a marginal effective tax rate (METR) and, employing a new methodology, by a marginal effective tax base (METB) which controls for statutory corporate tax rates. A higher METR for entities headquartered in worldwide jurisdictions is explained by higher corporate statutory tax rates rather than by the difference in the taxation of foreign profits. The METB of companies headquartered in worldwide countries is not statistically different from that of companies headquartered in territorial countries. Using corporate presence in tax havens, the paper also investigates the vulnerability of territorial jurisdictions to tax avoidance. The results show that offshore low-tax operations reduce the METR and the METB of multinationals more in territorial systems than in worldwide systems.