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Shop till you drop those tax rates: Treaty shopping as a determinant for FDI stocks

CPB Background Document, 30 October 2014

This CPB Background Document supplements the CPB Discussion Paper 290 ‘Ranking the Stars - network analysis of bilateral tax treaties’ (van 't Riet & Lejour, 2014). It analyses in more detail than the accompanying discussion paper to what extent FDI positions can be explained by treaty shopping behaviour.

Read also CPB Discussion Paper 290 and the accompanying press release.

The issue is investigated by performing cross-sectional regressions, whereby standard models for inward and outward FDI are augmented with a betweenness centrality indicator, which reflects how attractive a country is as conduit for dividend flows. The document is structured as follows. Chapter 2 discusses and motivates the research methodology, while chapter 3 describes the data used in the analysis. In chapter 4, the baseline regression results are presented followed by a number of robustness checks. Finally, in chapter 5 we come to conclusions.

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