Working Paper: CEPR ID: DP3247
Authors: michael p devereux; rachel griffith
Abstract: We consider the impact of taxation when investors face a discrete choice between two or more mutually exclusive projects; in particular we consider the location choice of multinationals. Such choices depend on an effective average tax rate. We propose a precise measure of this rate, which is shown to be equal to a weighted average of an effective marginal tax rate and an adjusted statutory tax rate, where the weights depend on the profitability of the investment. Estimates of the distribution of this measure are presented and compared for domestic and international investment in the USA, France, Germany, and the UK. We analyse the impact of harmonising corporate tax rates in Europe on incentives to locate in France, Germany and the UK.
Keywords: investment; location choice; tax coordination; tax policy
JEL Codes: H25; H32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| effective average tax rate (EATR) (H26) | net present value (NPV) (G00) |
| net present value (NPV) (G00) | location decision (R32) |
| effective average tax rate (EATR) (H26) | location decision (R32) |
| profitability (L21) | effective average tax rate (EATR) (H26) |
| profitability (L21) | location decision (R32) |
| harmonizing corporate tax rates (F38) | location decision (R32) |