Multiple taxes and alternative forms of FDI: evidence from cross-border acquisitions
International Tax and Public Finance
Reason for embargo
Publisher embargo 12 months
This paper explores the role of tax instruments in affecting foreign direct investment (FDI), paying particular attention on their effect on two forms of FDI strategy, ‘horizontal’ and ‘vertical’. Applying a decomposition of FDI strategies to the universe of cross-border mergers (the dominant form of FDI) over the period 1999–2010, it emerges that taxes have a much more nuanced effect on FDI than frequently suggested; while corporate taxes affect FDI negatively, the tax elasticity varies depending on the FDI strategy (with vertical FDI being in general more responsive), the exact measure of taxation, and international tax considerations (double taxation, withholding taxes). Sales taxes also affect FDI, but only horizontally.
“The final publication is available at Springer via http://dx.doi.org/10.1007/s10797-015-9351-6”.