FDI and Taxation: A Meta-Study

Despite the continuing political interest in the usefulness of tax competition and tax coordination as well as the wealth of theoretical analyses, it still remains open whether or when tax competition is harmful. Moreover, the influence of tax differentials on multinationals' decisions is still insufficiently analyzed. Thus, economists have increasingly resorted to empirical analysis in order to gain insights on the elasticity of FDI with respect to company taxation. As a result, the empirical literature on taxation and international capital flows has grown to a similar abundance during the last 25 years as the respective theoretical literature. Its heterogeneity leads to a rising need for concise reviews on the existing empirical evidence. In this paper we extend former meta-analyses on FDI and taxation in three ways. First, we add the most recent publications unconsidered in meta-analyses up-to-date. Second, we apply a different methodology by using a broad set of meta-regression estimators and explicitly discuss which one is most suitable for application to our meta-data. Third, we address some important issues in research on FDI and taxation to the clarification of which meta-analysis can make valuable contributions. These issues are mainly: The influence of variables which might moderate effects of tax differentials (e.g. public spending), the implications of using aggregate FDI data as opposed to firm-level information on measured tax effects, the implications of bilateral effective tax rates, and the possible presence of publication bias in primary research. --Corporate Income Taxation,Foreign Direct Investment,Meta Analysis

FDI and Taxation: A Meta-Study

Despite the continuing political interest in the usefulness of tax competition and tax coordination as well as the wealth of theoretical analyses, it still remains open whether or when tax competition is harmful. Moreover, the influence of tax differentials on multinationals’ decisions is still insufficiently analyzed. Thus, economists have increasingly resorted to empirical analysis in order to gain insights on the elasticity of FDI with respect to company taxation. As a result, the empirical literature on taxation and international capital flows has grown to a similar abundance during the last 25 years as the respective theoretical literature. Its heterogeneity leads to a rising need for concise reviews on the existing empirical evidence. In this paper we extend former meta-analyses on FDI and taxation in three ways. First, we add the most recent publications unconsidered in meta-analyses up-to-date. Second, we apply a different methodology by using a broad set of meta-regression estimators and explicitly discuss which one is most suitable for application to our meta-data. Third, we address some important issues in research on FDI and taxation to the clarification of which meta-analysis can make valuable contributions. These issues are mainly: The influence of variables which might moderate effects of tax differentials (e.g. public spending), the implications of using aggregate FDI data as opposed to firm-level information on measured tax effects, the implications of bilateral effective tax rates, and the possible presence of publication bias in primary research.corporate income taxation, foreign direct investment, meta analysis

Capital structure choice and company taxation: A meta-study

This paper provides a quantitative review of the empirical literature on the tax impact on corporate debt financing. Synthesizing the evidence from 46 previous studies, we find that this impact is substantial. In particular, the tax rate proxy determines the outcome of primary analyses. Measures like the simulated marginal tax rate (Graham (1996a)) avoid a downward bias in estimates for the debt response to tax. Moreover, debt characteristics, econometric specifications, and the set of control-variables affect tax effects. Accounting for misspecification biases by means of meta-regressions, we predict a marginal tax effect on the debt ratio of 0.3. --capital structure,corporate income tax,meta-analysis

Multinationals’ Profit Response to Tax Differentials: Effect Size and Shifting Channels

This paper provides a quantitative review of the empirical literature on profit-shifting behavior of multinational firms. We synthesize the evidence from 25 studies and find a substantial response of profit measures to international tax rate differentials. Accounting for misspecification biases by means of meta-regressions, we predict a tax semi-elasticity of subsidiary pre-tax profits of about 0.8. Moreover, we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel. Our results suggest that transfer pricing and licensing are the dominant profit-shifting channel

Capital Structure Choice and Company Taxation: A Meta-Study

This paper provides a quantitative review of the empirical literature on the tax impact on corporate debt financing. Synthesizing the evidence from 46 previous studies, we find that this impact is substantial. In particular, the tax rate proxy determines the outcome of primary analyses. Measures like the simulated marginal tax rate (Graham (1996a)) avoid a downward bias in estimates for the debt response to tax. Moreover, debt characteristics, econometric specifications, and the set of control-variables affect tax effects. Accounting for misspecification biases by means of meta-regressions, we predict a marginal tax effect on the debt ratio of 0.3.capital structure, corporate income tax, meta-analysis

Impact of tax rate cut cum base broadening reforms on heterogeneous firms: Learning from the German tax reform 2008

The German corporate tax reform of 2008 has brought about important cuts in corporate tax rates, which were at the same time accompanied by significant changes in the determination of the tax base for both major German corporate taxes - corporate income tax and trade tax. The reform followed the distinct and internationally prevalent pattern of tax rate cut cum base broadening. Its implications are thus not unique to Germany. Especially in view of the current economic crisis, questions on the distribution of the tax burden among firms of different characteristics have arisen and still remain at the heart of the academic and political debate in Germany and other countries. In this paper we present a new corporate microsimulation model, ZEW TaxCoMM, which allows for the coherent micro-based analysis of revenue implications of tax reforms and the distribution of tax consequences among heterogeneous firms. The model processes firm-level financial accounting input data and derives the firm specific tax base and tax due endogenously in accordance with the tax code. To smooth out distortions between the sample and the population of German corporations, the sample is extrapolated on the basis of the corporate income tax statistic. The simulation results show inter alia that the average annual relief as measured by the average decline in the effective tax burden on cash flow amounts to 2.8 percentage points for large corporations and to 6 percentage points for small corporations. Furthermore, the results illustrate that firms with low profitability, high debt ratio and high capital intensity benefit least from the reform. As to tax revenues, the reform induced decrease amounts to 9.8 billion and the trade tax gains fiscally in importance. --Tax reform,microsimulation,tax policy evaluation

FDI and taxation: a meta-Ssudy

Despite the continuing political interest in the usefulness of tax competition and tax coordination as well as the wealth of theoretical analyses, it still remains open whether or when tax competition is harmful. Moreover, the influence of tax differentials on multinationals' decisions is still insufficiently analyzed. Thus, economists have increasingly resorted to empirical analysis in order to gain insights on the elasticity of FDI with respect to company taxation. As a result, the empirical literature on taxation and international capital flows has grown to a similar abundance during the last 25 years as the respective theoretical literature. Its heterogeneity leads to a rising need for concise reviews on the existing empirical evidence. In this paper we extend former meta-analyses on FDI and taxation in three ways. First, we add the most recent publications unconsidered in meta-analyses up-to-date. Second, we apply a different methodology by using a broad set of meta-regression estimators and explicitly discuss which one is most suitable for application to our meta-data. Third, we address some important issues in research on FDI and taxation to the clarification of which meta-analysis can make valuable contributions. These issues are mainly: The influence of variables which might moderate effects of tax differentials (e.g. public spending), the implications of using aggregate FDI data as opposed to firm-level information on measured tax effects, the implications of bilateral effective tax rates, and the possible presence of publication bias in primary research

Impact of tax rate cut cum base broadening reforms on heterogeneous firms: Learning from the German tax reform 2008

The German corporate tax reform of 2008 has brought about important cuts in corporate tax rates, which were at the same time accompanied by significant changes in the determination of the tax base for both major German corporate taxes - corporate income tax and trade tax. The reform followed the distinct and internationally prevalent pattern of tax rate cut cum base broadening. Its implications are thus not unique to Germany. Especially in view of the current economic crisis, questions on the distribution of the tax burden among firms of different characteristics have arisen and still remain at the heart of the academic and political debate in Germany and other countries. In this paper we present a new corporate microsimulation model, ZEW TaxCoMM, which allows for the coherent micro-based analysis of revenue implications of tax reforms and the distribution of tax consequences among heterogeneous firms. The model processes firm-level financial accounting input data and derives the firm specific tax base and tax due endogenously in accordance with the tax code. To smooth out distortions between the sample and the population of German corporations, the sample is extrapolated on the basis of the corporate income tax statistic. The simulation results show inter alia that the average annual relief as measured by the average decline in the effective tax burden on cash flow amounts to 2.8 percentage points for large corporations and to 6 percentage points for small corporations. Furthermore, the results illustrate that firms with low profitability, high debt ratio and high capital intensity benefit least from the reform. As to tax revenues, the reform induced decrease amounts to € 9.8 billion and the trade tax gains fiscally in importance. --tax reform,microsimulation,tax policy evaluation

ZEW Corporate Taxation Microsimulation Model (ZEW TaxCoMM)

Current political discussions in Germany and other European countries illustrate the importance accorded to revenue and distribution effects of tax reforms. Whereas widely recognized concepts of effective tax measures can provide important insights into the incentives of taxation they do not allow robust revenue estimations or distribution analyses. Hence there is need to supplement existing quantitative tax models by approaches apt for these issues of policy analysis. Against this background, this paper puts forward a corporate microsimulation model allowing an ex-ante evaluation of tax reforms with regard to distributional consequences and revenue effects. Central feature of the model is the processing of financial statements included in the DAFNE data base of the Bureau van Dijk. The firm-level data is supplemented by survey data on tax accounting practices. The focus of the paper is on the documentation of the model set-up. Its application will be addressed in future publications. --Microsimulation Model,Corporate Taxation,Policy Analysis,Firm-Level Data

ZEW Corporate Taxation Microsimulation Model (ZEW TaxCoMM)

Current political discussions in Germany and other European countries illustrate the importance accorded to revenue and distribution effects of tax reforms. Whereas widely recognized concepts of effective tax measures can provide important insights into the incentives of taxation they do not allow robust revenue estimations or distribution analyses. Hence there is need to supplement existing quantitative tax models by approaches apt for these issues of policy analysis. Against this background, this paper puts forward a corporate microsimulation model allowing an ex-ante evaluation of tax reforms with regard to distributional consequences and revenue effects. Central feature of the model is the processing of financial statements included in the DAFNE data base of the Bureau van Dijk. The firm-level data is supplemented by survey data on tax accounting practices. The focus of the paper is on the documentation of the model set-up. Its application will be addressed in future publications. --Microsimulation Model,Corporate Taxation,Policy Analysis,Firm-Level Data