publication . Article . 2006

The impact of endogenous tax treaties on foreign direct investment: theory and evidence

Peter Egger; Mario Larch; Michael Pfaffermayr; Hannes Winner;
  • Published: 01 Jan 2006 Journal: Canadian Journal of Economics/Revue canadienne d&apos;<html_ent glyph="@eacute;" ascii="e"/>conomique, volume 39, pages 901-931 (issn: 0008-4085, eissn: 1540-5982, Copyright policy)
  • Publisher: Wiley
This paper investigates the effect of tax treaties on bilateral stocks of outward FDI. For this purpose we employ a numerically solvable general equilibrium model of trade and multinational firms to study the impact of tax treaties on both welfare and outward FDI. The model indicates under which factor endowment configurations countries gain in welfare when implementing a tax treaty. This motivates an empirical specification of the endogenous selection into implementing new tax treaties. Using data of bilateral OECD outward FDI between 1985 and 2000, we find a significant negative impact of newly implemented tax treaties on outward FDI stocks.
free text keywords: Economics and Econometrics, Microeconomics, International taxation, Multinational corporation, Economics, Factor endowment, Double taxation, Value-added tax, Foreign direct investment, Tax treaty, General equilibrium theory, jel:H25, jel:H87, jel:F21, jel:F23, jel:C33
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