International tax spillovers and tangible investment, with implications for a global minimum tax

This paper reconsiders the impact of taxation on cross-border tangible investment, using assembled fit-for-purpose data focused primarily on EU members, and within a framework pointing to a neglected possibility of ‘implicit’ profit shifting through real investment. Spillovers from statutory tax rates abroad prove to be as sizable as effects from the host’s rate, above consensus values (reflecting a systematic bias shown to arise from the FDI data commonly used) and consistent with implicit profit shifting. Contrary to common presumptions, marginal effective tax rates in host countries have only a weak effect on inward real investment, and those elsewhere have none. Applied to a global minimum tax, the results imply an increase in inward tangible investment into most sample countries, with the aggregate effect across all sample host countries being a modest increase.