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How low business tax rates attract multinational headquarters : municipality-level evidence from Germany
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Becker, Sascha O., Egger, Peter and Merlo, Valeria (2009) How low business tax rates attract multinational headquarters : municipality-level evidence from Germany. Working Paper. Coventry: CESifo. CESifo Working Paper (No.2517). (Unpublished)
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Official URL: http://www.cesifo-group.de/portal/page/portal/ifoH...
Abstract
Most existing empirical evidence on the impact of profit taxation on multinational firm activity is based on cross-country data. One major drawback of such data is that countries differ not only with regard to taxes but along other dimensions which might be hard to capture by means of observable characteristics. We compile a database of more than 11,000 municipalities in Germany to analyze the sensitivity of the location decisions of foreign MNEs with respect to business tax rates which are levied directly by the municipalities. Using count data models suited for cross-sectional and panel data, we find that higher business tax rates have a negative effect on the number of foreign MNE headquarters, after controlling for other determinants of firm location decisions. On average, a one-percent reduction of the municipal business tax rate (equivalent to a decline by about 0.14 percentage points) leads to an increase in the number of headquarters of foreign MNEs by about 0.05. Hence, the average municipality needs to reduce its business tax rate by 20% to attract one foreign MNE.
| Item Type: | Working or Discussion Paper (Working Paper) | ||||
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| Subjects: | H Social Sciences > HB Economic Theory J Political Science > JN Political institutions (Europe) |
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| Divisions: | Faculty of Social Sciences > Economics | ||||
| Series Name: | CESifo Working Paper | ||||
| Publisher: | CESifo | ||||
| Place of Publication: | Coventry | ||||
| Official Date: | January 2009 | ||||
| Dates: |
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| Number: | No.2517 | ||||
| Institution: | University of Warwick | ||||
| Status: | Not Peer Reviewed | ||||
| Publication Status: | Unpublished | ||||
| Access rights to Published version: | Open Access (Creative Commons) | ||||
| Funder: | German Science Foundation |
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