Cross-border tax effects on affiliate investment-Evidence from European multinationals

► We investigate cross-border effects of corporate taxes on multinational investment. ► With common inputs, taxes in the parent country reduce affiliate investment abroad. ► Using data for European MNEs, we find evidence in line with this hypothesis. ► A parent tax increase by 10 percentage points dampens affiliate investment by 5.6%. ► From a welfare perspective, the effect gives rise to a negative fiscal externality.