This paper considers the factors that influence the locational decisions of multinational firms. A model in which firms produce differentiated products in imperfectly competitive markets is developed, in the spirit of . Firms choose between a number of foreign locations; the outside options of exporting to or not serving the foreign market are explicitly modelled. Particular attention is paid to the impact of profit taxes; the separate roles of effective average and marginal tax rates are identified. The model is applied to a panel of US firms locating in the European market. Agglomeration effects are found to be important. The effective average tax rate plays a role in the choice between locations, but not in the choice of whether to locate production in Europe compared with one of the outside options.
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Authors
Research Associate University of Oxford and Oxford Centre for Business Taxation
Michael joined the IFS in 1982 and he has been a Research Fellow since 1990 and a Professor of Economics at the University of Oxford.
CPP Co-Director, IFS Research Director
Rachel is Research Director and Professor at the University of Manchester. She was made a Dame for services to economic policy and education in 2021.
Journal article details
- Publisher
- Journal of Public Economics
- JEL
- D2, F2, H3
- Issue
- June 1998
Suggested citation
Devereux, M and Griffith, R. (1998). 'Taxes and the location of production: evidence from a panel of US multinationals' (1998)
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