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American Economic Journal: Economic Policy: Vol. 6 No. 2 (May 2014)

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The Differential Effects of Bilateral Tax Treaties

Article Citation

Blonigen, Bruce A., Lindsay Oldenski, and Nicholas Sly. 2014. "The Differential Effects of Bilateral Tax Treaties." American Economic Journal: Economic Policy, 6(2): 1-18.

DOI: 10.1257/pol.6.2.1

Abstract

Bilateral tax treaties (BTTs) are intended to promote foreign direct investment through double-taxation relief. Using BEA firm-level data, we find a positive effect of BTTs on FDI, which is larger for firms that use differentiated inputs. BTTs allow multinational firms to request assistance from treaty partners' governments if they have a grievance about how tax liabilities are determined. These provisions disproportionately benefit firms that use inputs for which an arm's-length price is difficult to observe, since allocation of earnings across countries is more complex. We find differential BTT effects for both sales by existing affiliates and entry of new affiliates.

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Authors

Blonigen, Bruce A. (U OR)
Oldenski, Lindsay (Georgetown U)
Sly, Nicholas (U OR)

JEL Classifications

F23: Multinational Firms; International Business
H25: Business Taxes and Subsidies including sales and value-added (VAT)
H87: International Fiscal Issues; International Public Goods

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