Publication

This paper analyzes the effect of tax rates on inward foreign direct investment in Germany. The authors argue that intra-company loans granted by the parent should be all the more strongly preferred over equity the lower the tax rate of the parent and the higher the tax rate of the German affiliate. While they only find small effects of the tax rate of the foreign parent, their results show that subsidiaries react to changes in the German corporate tax rate. Moreover, they hold that the more profitable a company is the stronger is its reaction.