Where Does Multinational Investment Go with Territorial Taxation? Evidence from the United Kingdom
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Abstract
In 2009, the United Kingdom changed from a worldwide to a territorial tax system, abolishing dividend taxes on foreign repatriation from many low-tax countries. This paper assesses the causal effect of territorial taxation on real investments, using a unique dataset for multinational affiliates in 27 European countries and employing the difference-in-differences approach. It finds that the territorial reform has increased the investment rate of UK multinationals by 16.7 percentage points in low-tax countries. In the absence of any significant investment reduction elsewhere, the findings represent a likely increase in total outbound investment by UK multinationals.Citation
Liu, Li. 2020. "Where Does Multinational Investment Go with Territorial Taxation? Evidence from the United Kingdom." American Economic Journal: Economic Policy, 12 (1): 325-58. DOI: 10.1257/pol.20180592Additional Materials
JEL Classification
- F23 Multinational Firms; International Business
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H32 Fiscal Policies and Behavior of Economic Agents: Firm
- H87 International Fiscal Issues; International Public Goods
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