Discussion Paper Details

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Title: Evaluating Tax Policy for Location Decisions

Author(s): Michael P. Devereux and Rachel Griffith

Publication Date: March 2002

Keyword(s): investment, location choice, tax coordination and tax policy

Programme Area(s): Public Economics

Abstract: We consider the impact of taxation when investors face a discrete choice between two or more mutually exclusive projects; in particular we consider the location choice of multinationals. Such choices depend on an effective average tax rate. We propose a precise measure of this rate, which is shown to be equal to a weighted average of an effective marginal tax rate and an adjusted statutory tax rate, where the weights depend on the profitability of the investment. Estimates of the distribution of this measure are presented and compared for domestic and international investment in the USA, France, Germany, and the UK. We analyse the impact of harmonising corporate tax rates in Europe on incentives to locate in France, Germany and the UK.

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Bibliographic Reference

Devereux, M and Griffith, R. 2002. 'Evaluating Tax Policy for Location Decisions'. London, Centre for Economic Policy Research.