Statutory Corporate Tax Rates and Double-Taxation Treaties as Determinants of Multinational Firm Activity

This paper analyzes the influence of statutory corporate tax rates on profits and of double-taxation treaties (DTTs) on multinational firm (MNE) activity at the micro level. It provides an assessment of the effects of these profit tax instruments on the extensive and the intensive margin of activity. In particular, we estimate two-part quasi-maximum-likelihood models using panel data on the foreign activity of German MNEs in the decade 1996–2005 and find that statutory tax rates affect MNE activity negatively both at the extensive and at the intensive margin of investment, while DTTs primarily induce a positive effect at the extensive margin.