Abstract
We examine the impact of bilateral and multilateral tax treaties on bilateral FDI stocks. First, we present panel regressions of the effects of treaties on FDI based on an extensive database of all OECD countries from 1985 onwards. We use geographic instruments to correct for the endogeneity of tax treaties. In contrast to many papers we find that these treaties increase bilateral FDI
significantly. The increase is about 16 percent and for new treaties this is even 21 percent. Moreover, the EU parent subsidiary directive doubles bilateral FDI stocks. Second, we analyze the effects of treaty shopping on FDI using the number of tax treaties as proxy for the attractiveness of a country for establishing a holding. This indicator has a significant impact on FDI: twenty extra tax treaties increase bilateral FDI stocks by about 50 percent. Lower withholding tax rates of dividends do also attract FDI.
significantly. The increase is about 16 percent and for new treaties this is even 21 percent. Moreover, the EU parent subsidiary directive doubles bilateral FDI stocks. Second, we analyze the effects of treaty shopping on FDI using the number of tax treaties as proxy for the attractiveness of a country for establishing a holding. This indicator has a significant impact on FDI: twenty extra tax treaties increase bilateral FDI stocks by about 50 percent. Lower withholding tax rates of dividends do also attract FDI.
| Original language | English |
|---|---|
| Place of Publication | Oxford |
| Publisher | Oxford University Centre for Business Taxation |
| Number of pages | 30 |
| Publication status | Published - Feb 2014 |
| Externally published | Yes |
Publication series
| Name | Working paper |
|---|---|
| Volume | 14/03 |