Template-Type: ReDIF-Paper 1.0
Author-Name: Richard Chisik
Author-X-Name-First: Richard
Author-X-Name-Last: Chisik
Author-Email: rchisik@economics.ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Author-Name: Ronald B. Davies
Author-X-Name-First: Ronald  
Author-X-Name-Last: Davies
Author-Email: rdavies@oregon.uoregon.edu
Author-Workplace-Name:  Department of Economics, University of Oregon, Eugene, Oregon
Title: Asymmetric FDI and Tax-Treaty Bargaining: Theory and Evidence
Abstract: Tax treaties are often viewed as a mechanism for eliminating tax competition, however this
approach ignores the need for bargaining over the treaty?s terms. This paper focuses on how
bargaining can affect the withholding taxes set under the treaty. In a simple framework, we develop
hypotheses about patterns in treaty tax rates. A key determinant for these patterns is the relative size of
bilateral foreign direct investment (FDI) activity. In plausible situations, more asymmetric countries
will negotiate treaties with higher tax rates. This theory is then tested using 1992 data from U.S.
bilateral tax treaties. Overall, the data supports the prediction that greater asymmetric FDI activity
increases the negotiated tax rates.
Classification-JEL: F23, H25, K34.
Keywords: Foreign Direct Investment, Tax Treaties, Multinational Corporations, Bargaining,
Withholding Taxes.
Length: 41 pages
Creation-Date: 2010-08
Number: 020
File-URL: http://economics.ryerson.ca/workingpapers/wp020.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp020