Foreign investment decisions of firms are often characterized by investment irreversibility,uncertainty, and the ability to choose the optimal timing of foreign investments. We embed these characteristics into a real option theory framework to analyze international competition among countries to attract mobile investments when firms, after the investment is sunk, can shift profit to low tax countries by transfer pricing. We find that an increase in the uncertainty of profit income reduces the equilibrium tax rates, whilst lower investment costs or larger profits, counteracts the negative fiscal externality of tax competition leading to higher equilibrium tax rates.

To Invest or not to Invest: A Real Options Approach to FDIs and Tax Competition

PANTEGHINI, Paolo;
2006-01-01

Abstract

Foreign investment decisions of firms are often characterized by investment irreversibility,uncertainty, and the ability to choose the optimal timing of foreign investments. We embed these characteristics into a real option theory framework to analyze international competition among countries to attract mobile investments when firms, after the investment is sunk, can shift profit to low tax countries by transfer pricing. We find that an increase in the uncertainty of profit income reduces the equilibrium tax rates, whilst lower investment costs or larger profits, counteracts the negative fiscal externality of tax competition leading to higher equilibrium tax rates.
File in questo prodotto:
File Dimensione Formato  
Panteghini ITAX 2006 Schjelderup.pdf

gestori archivio

Tipologia: Full Text
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 437.07 kB
Formato Adobe PDF
437.07 kB Adobe PDF   Visualizza/Apri   Richiedi una copia
Panteghini ITAX 2006 Schjelderup.doc

gestori archivio

Tipologia: Abstract
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 22 kB
Formato Microsoft Word
22 kB Microsoft Word   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11379/24994
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 11
  • ???jsp.display-item.citation.isi??? 9
social impact