International taxation and multinational firm location decisions

Using a large international firm-level data set, we examine the separate effects of host and additional parent country taxation on the location decisions of multinational firms. Both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries. The impact of parent country taxation is estimated to be sizeable consistent with its international discriminatory nature. Our results show that international double taxation by the parent country – despite the general possibility of deferral of taxation until income repatriation – is instrumental in shaping the structure of multinational enterprise.

► Multinational firm location decisions respond to host and parent country taxes.
► Impact of parent country tax is sizeable despite general possibility of deferral.
► This reflects international discriminatory nature of parent country taxation.