The Foreign Investment Effects of Tax Treaties

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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.
Original languageEnglish
Place of PublicationOxford
PublisherOxford University Centre for Business Taxation
Number of pages30
Publication statusPublished - Feb 2014
Externally publishedYes

Publication series

NameWorking paper
Volume14/03

Fingerprint

Foreign investment
Tax treaties
Bilateral
Treaties
Tax rate
Data base
Endogeneity
Shopping
Subsidiaries
OECD countries
Dividends
Withholding tax
Attractiveness
Panel regression

Cite this

Lejour, A. (2014). The Foreign Investment Effects of Tax Treaties. (Working paper; Vol. 14/03). Oxford: Oxford University Centre for Business Taxation.
Lejour, Arjan. / The Foreign Investment Effects of Tax Treaties. Oxford : Oxford University Centre for Business Taxation, 2014. (Working paper).
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Lejour, A 2014 'The Foreign Investment Effects of Tax Treaties' Working paper, vol. 14/03, Oxford University Centre for Business Taxation, Oxford.

The Foreign Investment Effects of Tax Treaties. / Lejour, Arjan.

Oxford : Oxford University Centre for Business Taxation, 2014. (Working paper; Vol. 14/03).

Research output: Working paperOther research output

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Lejour A. The Foreign Investment Effects of Tax Treaties. Oxford: Oxford University Centre for Business Taxation. 2014 Feb. (Working paper).