Multinational enterprises and corporate taxation [Elektronische Ressource] : an empirical assessment of the location of assets, profits and debt / vorgelegt von Matthias Dischinger

Matthias Dischinger

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2009
• Nombre de lectures: 8
• Langue: English

Extrait

Multinational Enterprises
and Corporate Taxation:
An Empirical Assessment of the
Location of Assets, Profits and Debt
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universit at Munc hen
Volkswirtschaftliche Fakult at
im Jahr 2009
vorgelegt von
Matthias Dischinger
Erstgutachter: Prof. Dr. Andreas Hau er
Zweitgutachter: Prof. Dr. Thiess Buttner
Mundlic he Prufung: 27. Januar 2010
Promotionsabschlussberatung: 10. Februar 2010Acknowledgments
First of all, I would like to thank my supervisor Prof. Andreas Hau er for his support
and inspiring comments. Working at his Seminar for Economic Policy was a very
pleasant experience due to his competent and fair leadership.
Also, I am indebted to Prof. Thiess Buttner and Prof. Monika Schnitzer for being the
second and third referee, respectively, in my thesis committee.
Furthermore, I am very grateful to my co-author Dr. Nadine Riedel for working as a
team in two research projects for this thesis (Chapter 3 and 4). Her economic think-
ing and creativity is outstanding. In addition, I thank Ulrich Glogowsky and Marcus
Strobel for their excellent research assistance in my last study (Chapter 5).
I enjoyed inspiring discussions with many people and I was able to bene t from their
professional help and insightful feedback. Thus, I am indebted to Dr. Johannes Becker,
Dr. Tobias B ohm, Flaviu Borcoman, Axel von Bredow, Prof. Ronald Davis, Dr. Mar-
cus Drometer, Dr. Silke Englmaier, Erich Gluch, Prof. Georg von Graevenitz, Tanja
Greiner, Thorsten Hansen, Dr. Florian Heiss, Lars Hornuf, Prof. Roland Ismer, Dr. Si-
mon Loretz, Andreas Maier, Heike Mittelmeier and her team at the LMU-ifo Economics
& Business Data Center (EBDC), Ferdinand Mittermaier, Dr. Michael Overesch, Dr.
Stephan Rasch and Dr. Richard Schmidtke and their team at Deloitte, Dr. Johannes
Rincke, Prof. Marco Runkel, Arno Schm oller, Renate Schwirtz, David Stadelmann, Dr.
Christian Traxler, Dr. Johannes Voget, Dr. Georg Wamser, Prof. Joachim Winter and
Dr. Klaus Wohlrabe. Furthermore, I thank four anonymous referees for very helpful
comments.
German Research Foundation (DFG) granted nancial support for the research project
for three years, which is something I gratefully acknowledge.
Last but not least, very special thanks go to my wife Ioana, my mother, father, and to
my friends for their emotional support, patience, and motivation.
Matthias Dischinger, Munich, September 2009Contents
1 Introduction 1
2 Pro t Shifting by Multinationals and the Ownership Share: Evidence
from European Micro Data 9
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 A Simple Model of Pro t Shifting . . . . . . . . . . . . . . . . . . . . . 13
2.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4 Empirical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.4.1 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.4.2 Baseline Estimation Results . . . . . . . . . . . . . . . . . . . . 22
2.4.3 Robustness Checks . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.4.3.1 Cross{section Analysis . . . . . . . . . . . . . . . . . . 25
2.4.3.2 Domestic Individual Firms . . . . . . . . . . . . . . . . 27
2.4.4 Parent’s Ownership Share and Pro t Shifting . . . . . . . . . . 28
2.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3 Corporate Taxes and the Location of Intangible Assets Within Multi-
national Firms 34
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.2 A Simple Model of Intangible Asset Location . . . . . . . . . . . . . . . 38
3.3 Accounting for Intangible Assets and Identi cation Strategy . . . . . . 43
3.4 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.5 Econometric Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3.5.1 Baseline Estimation Model . . . . . . . . . . . . . . . . . . . . . 53
3.5.2 Binary Dependent Variable . . . . . . . . . . . . . . . . . . . . 54CONTENTS
3.5.3 Instrumental Variables Approach . . . . . . . . . . . . . . . . . 55
3.5.4 Dynamic Estimation Model . . . . . . . . . . . . . . . . . . . . 56
3.6 Estimation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.6.1 Baseline Estimations . . . . . . . . . . . . . . . . . . . . . . . . 57
3.6.2 Binary Dependent Variable . . . . . . . . . . . . . . . . . . . . 59
3.6.3 Instrumental Variables Estimations . . . . . . . . . . . . . . . . 60
3.6.4 Dynamic Estimations . . . . . . . . . . . . . . . . . . . . . . . . 62
3.6.5 Robustness Checks . . . . . . . . . . . . . . . . . . . . . . . . . 65
3.6.6 Location of Intangible Assets and Pro t Shifting . . . . . . . . . 66
3.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
4 There’s No Place Like Home: The Pro tability Gap between Head-
quarters and their Foreign Subsidiaries 72
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
4.2 Theoretical Considerations . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4.4 Econometric Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.5 Estimation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
4.5.1 Baseline Estimations . . . . . . . . . . . . . . . . . . . . . . . . 82
4.5.2 Development over Time . . . . . . . . . . . . . . . . . . . . . . 85
4.5.3 A Closer Look: Agency Costs and Home Market E ect . . . . . 87
4.5.4 Robustness Checks . . . . . . . . . . . . . . . . . . . . . . . . . 90
4.6 Implications for Public Economics . . . . . . . . . . . . . . . . . . . . . 93
4.6.1 Higher Parent Tax Payments . . . . . . . . . . . . . . . . . . . 94
4.6.2 E ect on Pro t Shifting Behavior . . . . . . . . . . . . . . . . . 96
4.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100CONTENTS
5 Leverage, Corporate Taxes and Debt Shifting of Multinationals: The
Impact of Firm-speci c Risk 102
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
5.2 Literature Review on Debt Shifting . . . . . . . . . . . . . . . . . . . . 106
5.3 Theoretical Considerations . . . . . . . . . . . . . . . . . . . . . . . . . 109
5.4 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
5.4.1 Summary Statistics . . . . . . . . . . . . . . . . . . . . . . . . . 112
5.4.2 Firm-speci c Risk Proxy Variables . . . . . . . . . . . . . . . . 115
5.5 Econometric Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
5.6 Estimation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
5.6.1 Tax Rate E ect on Firm’s Leverage . . . . . . . . . . . . . . . . 118
5.6.2 External Debt and Internal Debt Shifting . . . . . . . . . . . . . 120
5.6.3 High-risk vs. Low-risk Firms . . . . . . . . . . . . . . . . . . . . 122
5.6.4 Robustness Check: High-risk vs. Low-risk Industries . . . . . . . 124
5.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
6 Conclusions 130
References 134Chapter 1
IntroductionChapter 1 { Introduction 2
The globalized world economy is experiencing a rising importance of multinational en-
terprises (MNEs). Referring to OECD data, worldwide foreign direct investment (FDI)
has sextupled since the early 1990s. These days, more than one third of international
trade is intra-company trade of MNEs with a liates in di erent locations worldwide.
Hence, for the modern rm it is optimal to fragment the production process across
national borders irrespective of tax considerations (e.g. Krugman, 1995). At this level
of decision, when the rm has generally decided on establishing a production plant
abroad versus the alternative of exporting, the rm can then choose between di erent
1locations, also taking national corporation taxes into account. From a theoretical view,
the incentive to locate in a speci c country increases with a smaller e ective average
corporate tax rate of that country.
This doctoral dissertation is concerned with the subsequent two levels of decision for
MNEs. First, conditional on locating in a particular country, the rm has the continuous
choice of the size of investment. The empirical literature has brought forward compre-
hensive evidence that the level of FDI is negatively a ected by corporate taxes (see
Devereux and Ma ni, 2007, for an extensive survey). Second, conditional on the level
of investments, the rm can decide the reallocation of realized pro ts among their a li-
ate locations worldwide by applying various tax avoidance strategies of income shifting.
The focus of this doctoral thesis is the empirical assessment of corporate tax e ects on
MNEs’ location decision of assets, pro ts and debt. Thereby, the aim is to analyze with
a large database of European MNEs and with modern and sophisticated econometric
methods that explicitly control for unobserved heterogeneity between multinational
a liates if corporate taxes and, more precisely, corporate tax rate di erences between
a liates of MNEs are relevant on these two latter levels of decision and, if yes, to
determine the ext