RECENT STUDIES


Corporate Income Taxes Around the World: A Survey on Forward-looking Tax Measures and Two Applications

This study provides a survey on corporate taxes around the world. Our analysis has three main objectives. First, we collect tax data and calculate (forward-looking) effective tax measures for a large sample of countries and recent years. We particularly describe how these measures vary over time and across countries, concluding that the majority of countries pursue so-called tax-cut-cum-base-broadening policies: most governments have significantly reduced their statutory tax rates on corporate income, while broadening the tax base through less attractive depreciation allowances. Second, we augment the country-level information with firm- and industry-level data (providing weights for financial structure and asset composition) to contrast statutory measures at the level of countries with measures accounting for firm- and industry-specific weights.

(RSIT Working Paper 05/2017)

The Effect of Investing Abroad on Investment at Home: On the Role of Technology, Tax Savings, and Internal Capital Markets

This paper examines the relationship between foreign and domestic investment activity of multinational enterprises. The empirical analysis is based on micro data of German firms and their operations at home and abroad, including information on investment in fixed assets. The empirical approach is shown to produce very robust results and allows us to distinguish between an extensive and intensive margin effect: setting up a new foreign affiliate leads to an immediate positive effect of about EUR 450,000 additional investment; the investment elasticity at the intensive margin is estimated to be approximately 0.13.

(RSIT WP 04/2017)

Measuring the interdependence of MNE's Foreign Investments

We use data on the universe of German multinational enterprises (MNEs) to explore how marginal investments at one foreign affiliate depend on investments at other affiliates within the same MNE. The empirical approach employs two channels or modes of cross-affiliate interdependence: mere geography (capturing horizontal linkages through correlated learning and horizontal competition within the firm) and input-output relationships within or across industries (which capture vertical linkages). In the firm-level data at hand, vertical linkages appear to be more important than horizontal ones. Investments at one location tend to stimulate investments at other locations of the same MNE, particularly if input linkages are strong. The opposite seems to be true for output linkages. Beyond vertical linkages, mere geographic proximity matters only to a minor extent. This suggests that evidence of linkages through geographic closeness at aggregate data levels accrue mainly to reasons of vertical linkages within networks of affiliates.

(RSIT WP 03/2017)

Relational Contracts and the Cost to Enforce Formal Contracts

In this paper we show that legal institutions can have far reaching effects on firms’ organizational choices. In particular, we explore the effects of the enforceability of legal contracts governing non-financial relationships between firms on corporate financing decisions, and provide robust empirical evidence on the magnitude of such effects. We make the empirical observation that a higher cost of enforcing formal contracts is negatively related to average firm leverage and propose a relational contract mechanism that can explain this outcome. Our empirical analysis suggest that the results are driven by the relational contract mechanism proposed in our theory model. Our findings have very general implications on the interaction between institutions and firm choices. Moreover, empirical evidence on the implications of relational contracts is naturally rare.

(RSIT WP 02/2017)