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Corporate tax and location choice for multinational firms

Lawless, Martina, McCoy, Daire ORCID: 0000-0001-6637-2227, Morgenroth, Edgar L. W. and O’Toole, Conor M. (2018) Corporate tax and location choice for multinational firms. Applied Economics, 50 (26). pp. 2920-2931. ISSN 0003-6846

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Identification Number: 10.1080/00036846.2017.1412078


This paper examines the effects of corporate tax on these location decisions of newly established multinational subsidiaries across 26 European countries over an eight year period. We contribute to the existing literature by examining the effects of a non-linear response of firm location decisions to changes in the tax rate. We also show that there are large variations in the sensitivity to tax rates across sectors and firm size groups. In particular, financial sector firms are more than twice as sensitive to changes in corporation tax rates relative to other sectors. Our baseline result is a finding that a one percent increase in the statutory or policy rate of corporation tax would lead to a reduction in the conditional location probability of 0.68 percent. Using the effective average tax rate (EATR), the marginal effect implies a reduction in the location probability of 1.15 percent following a 1 percent increase in the tax rate. Although overall tax has the expected negative effect on location probability, the marginal effect of an increase is lower at higher rates of tax.

Item Type: Article
Official URL:
Additional Information: © 2017 Informa UK Limited, trading as Taylor & Francis Group
Divisions: Grantham Research Institute
Subjects: H Social Sciences > HG Finance
JEL classification: C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C25 - Discrete Regression and Qualitative Choice Models
F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies
Date Deposited: 06 Dec 2017 14:08
Last Modified: 06 Jul 2024 00:48
Projects: 2014ESRI1
Funders: Department of Finance, Dublin, Ireland

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