GLoBE-alization and International Investment

• In Event: Attracting and Regulating MNCs

Abstract

Globally, tax evasion practices cost countries $100-240 billion per year. Tax revenues have also been limited by the increasing use of tax incentives to attract investment. However, recent coordination on international tax regulations will have significant impacts on the future of these strategies. Given the wide latitude of domestic governments over tax policy in the past, the sudden success of international tax coordination has been surprising. Therefore, in this project, I ask two interrelated questions: First, how did international tax coordination come to be? Second, how do changes to global tax rules affect the international investment environment and the future of industrial policy? To answer the first question, I outline an analytical history of the creation of the international tax regime. I then focus specifically on the business community and argue that these non-state actors significantly influenced the regulations; I use natural language processing methods and an original observational dataset to bolster these claims. For the second question, I outline a typology of the political economy of FDI attraction instruments. By exploring the preferences of firms, politicians, and voters, I offer predictions on how changes to the international tax environment affect the use of these instruments. I argue that the global minimum tax will dampen the use of investment incentives and shift the politicization of FDI from local politicians to the bureaucracy. I use survey experiments, difference-in-differences, and observational data to test these claims. This project contributes to the understanding of industrial policy, inequality, and international law.

Author

• Margaret Anne Kenney, University of California, Berkeley