Research Phase 7 Business taxes
1 Personal taxes and location decisions
Personal taxes, labour regulation, and the location decisions of multinationals
Shafik Hebous
Alfons J. Weichenrieder
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.
2 Corporate taxation and capital
Corporate taxation and capital accumulation: evidence from firm-level data
Stephen Bond
Jing Xing
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.
3 Territoriality
Territoriality, worldwide principle, and competitiveness of multinationals: a firm-level analysis of tax burdens
Giorgia Maffini
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.
1 Personal taxes and location decisions
Personal taxes, labour regulation, and the location decisions of multinationals
Shafik Hebous
Alfons J. Weichenrieder
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.
2 Corporate taxation and capital
Corporate taxation and capital accumulation: evidence from firm-level data
Stephen Bond
Jing Xing
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.
3 Territoriality
Territoriality, worldwide principle, and competitiveness of multinationals: a firm-level analysis of tax burdens
Giorgia Maffini
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.
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