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Reprint of Cybergeo, European Journal of Geography , 50, 1-36, March 1998.

The multinational companies cost of capital and regional policy : tax cut or capital grant ?
M. MIGNOL T! ".#.N.$.%.& '& Rempart de la (ierge& )*+,,, N-M#R .) LGI#M/ e*mail : michel.mignolet0fundp.ac.1e 2ey*3ords ffecti4e tax rate& Income from capital& 5ost of capital& Open economy& Regional policy assessment& Multinational company. INTRO$#5TION Regional economics is concerned 3ith spatial distri1ution of economic acti4ities 1et3een core and peripheral regions. This 6uestion found a rene3ed topicality 3hen 3ere discussed the completion of the 7ingle uropean Mar8et and their implications for the disparities in the economic gro3th of regions. (arious studies9 stated that the progress of the uropean integration strengthened the natural propensity for the firms& particularly the multinational companies& to concentrate higher 4alue added acti4ities in core regions deserting the periphery. Regional policy has long 1een implemented in most of the industrialised countries 3ith the purpose of achie4ing a 1etter 1alance in the acti4ities distri1ution in space. The underlying reasons are generally that the go4ernments 3ant to reduce chronic unemployment and under* in4estment in depressed areas and to alle4iate congestion and o4ercro3ding in core regions. Of course a pro*acti4e policy of reducing disparities in the uropean #nion also exists. Its resources ha4e extensi4ely gro3n since !:'; .implementation of the reform of structural funds/ in order to foster the con4ergence across regions<. Much of regional policy relies on capital .and la1our/ su1sidies and tax incenti4es in order to stimulate in4estment in lagging regions. Through these ad4antages& the pu1lic sector intends to encourage ne3ly installed capital 1oth 1y stimulating in4estment from indigenous entrepreneurs and 1y attracting foreign direct in4estment from multinational companies=.

I 3ish to than8 >ac8 Mint? and the other seminar participants at the #ni4ersity of Toronto .-pril !::+/ and t3o anonymous referees for their useful comments. Thierry %iraux and -lain Moussiaux are also ac8noledged for their precious help in calculating first deri4ati4es of the function of capital cost. 9 7ee for instance O#G@TON .!::</ and AO#NG and @OO$ .!::</ mentioned 1y AO#NG& @OO$ and % T R7 .!::=/. < The process of con4ergence across regions in the uropean 5ommunity 1et3een !:;+ and !::, is e4aluated empirically 1y N ( N and GO#A TT .!::=/. = This distinction refers respecti4ely to the in4estment creation effect and to the in4estment di4ersion .or displacement/ effect. 7ee MIGNOL T .!::9/.
!

Bhether regional policy is effecti4e or not remains an much de1ated 6uestion. @ -$& RI 7 and 7B N7ON .!::=/ sho3+ that tax 1rea8s and in4estment su1sidies significantly affect the location decision. @-RRI7 .!:'</ and ) GG and Mc $OB LL .!:';/ C are other pre4ious examples; concluding to the effecti4eness of the pu1lic inter4ention. 5on4ersely "-INI& G-LLI and GI-NNINI .!::</ or )-5@ TT- .!::=/ ' ha4e dou1ts as to the efficiency of regional policy. The papers mentioned a1o4e and others I ha4e 8no3ledge fail to pay attention to the tax aspects affecting foreign direct in4estment income. Bhen the in4estment is cross*1order& at least t3o tax systems claim Durisdiction o4er the same income. Moreo4er one has not only to consider the rules of tax systems 1oth in the country of the parent: and in the country of its affiliate!, 1ut also to examine the interaction 1et3een these systems. This paper sets out to sho3 that the international taxation rules strongly influences the cost of capital 4alues. $epending on the particular case& tax pro4isions may either reinforce or mitigate the impact of regional policy on the rate of return of a marginal in4estment. The purpose of the paper is therefore to sho3 that one cannot really assess the efficiency of a regional policy aimed at attracting foreign direct in4estment disregarding the matter of international tax rules on income from capital. In order to achie4e this goal& I shall use a theoretical frame3or8 first constructed 1y 2ING and "#LL RTON .!:'=/!! and extended 1y -LBORT@ .!:''/ to deal 3ith international issues. This po3erful approach measures the marginal effecti4e tax rate on capital income 6uantifying the distorsi4e effects of tax systems on the in4estment return. It ena1les complicated pro4isions of tax codes to 1e modelled in a rigorous manner. No3adays it is the most familiar model and is internationally used!9. "or the needs of this paper& the only formula of capital cost extracted from -LBORT@ .!:''/ is sufficient. Its meaning and its foundations are explained in section 9. Our interest is to deepen the analysis of regional and fiscal policy on the cost of capital. The first deri4ati4es of the function of capital cost 3ith respect to the rate of capital grant and to the rate of corporate tax are accordingly also calculated. The implementation of this methodological approach gi4es results 3hich are presented and commented in section <.
In the same 3ay as agglomeration economies.Their study relies on a sample of >apanese manufacturing companies 3hich ha4e in4ested 1et3een !:', and !::9 in <= states of #.7.-. C @-RRI7 .!:'</ asserts that capital su1sidies succeeded in stimulating in4estment of the less fa4oured regions in the #nited 2ingdom. - sur4ey conducted 1y ) GG and Mc $OB LL .!:';/ displays that financial aids are ta8en in account 3hen computing the present 4alue of ne3 in4estment proDects. ; 7ee also $ ( R #E .!::9/ in his sur4ey on 1ehal4e of the Ruding 5ommittee& 3ho concluded that at least for multinational corporations F taxation does appear to ha4e a significant impact on the location of real acti4ities F G 6uoted 1y T-NHI .!::+/ I. ' Mentioned in N ( N and GO#A TT .!::=/. : -lso called the home country or the residence country. !, -lso called a1road& the source country or the host country. !! 7ee also -# R)-5@ .!:'</ and )O-$B-A .!:';/. !9 7ee O. .5.$. .!::!/& 5. . . .!::9/& >ORG N7ON and L-N$-# .!::</& .).R.$. .!::</ and 7@-@ .!::+/ respecti4ely for de4eloped .the first three references/& in transition and de4eloping countries. 7ome applications integrating regional policy are gi4en in G#IOT et MIGNOL T .!::+/ and in MIGNOL T& %IR-#E et ( R 52 .!::;/.
+

)ut 1efore displaying the methodology and the implementation results& it is useful in a first section to express the main assumptions 3hich this approach is 1uilt on. !. T@ -77#M%TION7 In order to pre4ent the analysis from 1ecoming too complex& I ha4e to ma8e some simplifying assumptions. "irst of all& one supposes that the location decision is elastic to the relati4e capital costs in the different settlement regions. The cost of capital is in turn depending on regional policy and on international tax en4ironment. The o4erriding tax*related determinants of in4estment and location decisions are li8ely the height of tax schedule on corporate income& the definition of tax 1ase& the financial and tax incenti4es to in4est in 1oth the host and home countries. "or the sa8e of simplicity& I lea4e aside after3ards the 6uestion of possi1le cross*country differences in the definition of the tax 1ase!<. I also consider the simplest form!= of international company& composed 1y a parent .head office/ and a 3holly dependent affiliate .a 1ranch or a su1sidiary/ located a1road. The rele4ant shareholder of the parent company is assumed to 1e an indi4idual in4estor residing in the home country .the same country as the parent company/. Of course the ultimate shareholder is su1Dect to personal taxes on the recei4ed return. Numerous financing arrangements are possi1le. In each case& they ha4e particular tax conse6uences. The parent company can pro4ide funds to the su1sidiary 1y purchasing ne3 shares issued 1y the affiliate or 1y lending to the su1sidiary!+. In order to finance these outflo3s& the parent raises funds 1y issuing ne3 e6uity domestically& retaining earnings or 1orro3ing on its o3n account in the home country. These arrangements are J parent*dependent financial policies K. Others are autonomous on the part of the affiliate. The su1sidiary .or 1ranch/ can retain its profits rather than repatriate them to the parent or 1orro3 locally. ach of these eight financing possi1ilities are examined here. More complex financial arrangements are ignored in this study!C. 7o is also the issuing of ne3 shares to non* maDority shareholders .i.e. not to parent/. The exchange rates 1et3een currencies in the home and the host countries are constant and e6ual to unity. The inflation rates are common across countries and sta1le o4er time. The expected tax parameters are assumed to 1e in4ariant in the future!;. 9. T@ T@ OR TI5-L "R-M BOR2

I also assume that the affiliate is ma8ing no tax losses. More complex group structures and possi1ilities for treaty shopping are 1eyond the scope of this study. !+ -nd& of course& charging interest on the funds. The multinational firms ha4e of course many methods other than di4idends and interests for repatriating funds. These methods& including transfer pricing or fees and royalties& are ignored here. !C 7ome complex financing structures are examined 1y %I RR .!::C/ and 1y @ 7% L .!::;/. !; That amounts to saying that there is no time*inconsistency.
!< !=

<

7pecific models of effecti4e tax rates ha4e 1een proposed in the economic literature for a1out ten to fifteen years. They ena1le the impact of the tax system and other pu1lic policy to 1e assessed. -LBORT@ .!:''/ extended the commonly used approach of 2ING and "#LL RTON .!:'=/ in order to include the complex matter of the international taxation. It is his theoretical frame3or8 3hich is at the root of this paper. I set out first to descri1e in 1road outline the main concepts and mathematical expressions of -l3orthLs model and then to deri4e some natural indicators for apprehending the sensi1ility of capital cost to regional policy ta8ing into account the international tax context. 9.!. The -l3orthLs model The user cost of capital is the concept 3hich underpins this approach. It is the minimum rate of return the in4estment proDect must yield 1efore taxes in order to pro4ide the sa4er 3ith a determined net of tax return. It captures into a summary statistic the financial cost .N/& the economic depreciation ./ of the asset and all pro4isions of the tax system 3hich may affect the in4estment return including amortisation allo3ances and a 3ide num1er of ne3ly installed capital incenti4es. J It is a for3ard*loo8ing measure in the sense that it is deri4ed from an explicit optimising frame3or8 centred on the in4estment decision of the firm K!'. The general expression for the capital cost& denoted p& in the -l3orthLs model!: is :

p=

! ( ! f ! A f 9 M f < g) ( N + ) ! M

.!/

In .!/& - and g are respecti4ely the present discounted 4alue of tax sa4ings from standard depreciation allo3ances and of capital grants after corporate tax on a unit of in4estment. f! &f9 and f< express in turn the proportion of the in4estment expense 3hich is 6ualifying for standard depreciation allo3ance& 3hich is entitled to immediate expensing .!,, per cent depreciation/ and on 3hich a capital su1sidy can 1e granted. is the rate of economic depreciation& assumed to 1e exponential and & the inflation rate of installed capital goods. and are supposed to 1e constant o4er time. Let us define more extensi4ely the corporate and personal taxes on retained and distri1uted profits and N& the financial cost of capital. a. The tax parameters on corporate profits
-LBORT@ .!:''/. If one ignores any corporate 3ealth taxes .3c/ and the tax treatment of in4entories in periods of inflation. The mathematical expression allo3ing for these t3o special tax issues is the follo3ing :
!' !:

p=

3here d! and d9 are dummy 4aria1les. The first& d! & is e6ual to unity if corporate 3ealth taxes are deducti1le against corporate tax 1ase and is e6ual to ?ero if 3ealth taxes are not deducti1le. The second& d 9& is e6ual to unity for in4entories and is e6ual to ?ero for other assets. The proportion of in4entories taxed on a historic cost 1asis is denoted 1y the sym1ol so that the additional tax incurred 1y the firm is e6ual to M.

! ( ! f ! A f 9 M f < g) ( N + ) + .! d! M/ wc + d9 M ! M

M is the effecti4e corporate tax rate 3hich 3ould apply if no profit of the foreign affiliate 3ere distri1uted. It includes the host and home country taxes. 7ymmetrically the taxation of remittances 1y affiliate is apprehended through the parameter M 3hich expresses the opportunity cost of retaining earnings in the affiliate in terms of gross di4idends 1efore personal taxes in the hands of the final shareholder in the home country. M and M are functions 3hose expression depends on the system of company taxation and method of dou1le tax relief9,. The cross*1order in4estment& as already mentioned& gi4es rise to a potential dou1le taxation on the return to corporate capital. One distinguishes the international .Duridical/ dou1le taxation 3hen a same income is taxed 1y t3o different national Durisdictions and the domestic .economic/ dou1le taxation 3hen in the same Durisdiction di4idends are taxed t3ice& once 1y the tax on corporation and one 1y the personal tax. In order to reduce or to eliminate the international double taxation & residence countries can apply three methods& respecti4ely credit& exemption and deduction. The first and third methods are di4ided into t3o according to 3hether taxes can 1e deferred or not. The 1asic principle of the tax credit method is simple. The residence country allo3s taxes paid in the host country as a credit against the tax lia1ility in the home country. In practice& tax credits are limited to the domestic tax 1ill on this income. -ccordingly the taxpayer 3ill pay the higher of the domestic and the foreign tax on his foreign*source income9!. T3o cases can 1e distinguished for the credit system& respecti4ely 3hen a deferral is applied and 3hen there is no deferral. In the former case& the home country defers taxation on the income of foreign affiliate until earnings are repatriated to the parent. In the latter case& the tax lia1ility in the home country is immediate& 3hate4er foreign profit is retained or distri1uted. #nder the method of exemption& the income from foreign source is exempt from domestic tax99. The third method implements a deduction mechanism. The tax paid in the source country is deducti1le from the tax 1ase in the residence country. >ust li8e the credit method one may distinguish t3o cases respecti4ely 3hen a deferral is applied and 3hen there is no deferral. -LBORT@ .!:''/ identified the mathematical expressions of M and M for each of these methods of reducing or eliminating international dou1le taxation9<. They are presented in ta1le
9,

The total tax lia1ility& including on distri1utions 1y the parent company& is therefore e6ual to

3here Aa is the foreign taxa1le profit and Gh& the gross di4idend distri1uted 1y the parent company attri1uta1le to foreign earnings. 9! The limitation on tax credits may apply to taxes paid in each indi4idual foreign country .it is the so*called J per country limitation K/ or dou1le taxation relief may 1e calculated 1y a4eraging the tax credits for high tax countries 3ith the tax credits from lo3 tax countries .it is the so*called J o4erall limitation K/. 7ometimes there is also a limitation 1y type of income. 99 xemption can also 1e pro4ided in the source country. It is the case 3hen a tax holiday is a3arded for specific periods of time. 9< 7ee -LBORT@ .!:''/& p ;9*'9.

! M T = MYa + Gh M

!. Bhen there is J o4erspill K9= under the credit methods .3ith and 3ithout deferral/& M and M ta8e the 4alues of the exemption method case. In ta1le ! su1scripts h and a mean respecti4ely the home country and a1road. 7o h and a express the company tax rates on undistri1uted profits in home and host country. 7ymmetrically a measures the additional income recei4ed 1y the parent company if the affiliate distri1utes a unit of retained earnings. T-)L ! : (alues of M and M under the different systems of dou1le tax relief General parameters
M
M

5redit no deferral

h
h

5redit 3ith deferral ! h h ! a

xemption $eduction no deferral

$eduction 3ith deferral

h a
a

h [ a + h .! a /]

ha .! h /
a

a +

h .! a / a + h .! a /

7ource : -LBORT@ .!:''/& p. '9.

The parameter h expresses on the other hand the opportunity cost of retaining profit in the parent company in terms of di4idends foregone for the ultimate shareholder. The 4alue of this last parameter is function of the treatment of economic double taxation in home country. The main standard systems of integrating the company taxes 3ith the personal tax on di4idend are the follo3ing. #nder the classical system& profits distri1uted to the final shareholder are fully lia1le to 1oth corporation tax and personal income tax. In the split-rate .also called J two-rate K/ system& distri1uted profits are taxed at a lo3er rate than retained earnings. The dividend deduction system allo3s companies to deduct a percentage of gross di4idends from the tax 1ase. The imputation system consists in considering a part of the corporate tax lia1ility as a prepayment of personal taxes due 1y the final shareholder. xcept for the classical system& 3here it is e6ual to unity& the 4alue of h exceeds unity. 1. The financial capital cost& N N denotes the financial capital cost. It is 4aria1le according to the source of finance. "unction of the real interest rate r& assumed internationally identical as 3ell for 1orro3ing as for lending& it expresses the rate at 3hich the firm has to discount after*tax cash flo3s. There are no transaction costs and there is no uncertainty9+. -LBORT@ .!:''/ identifies the mathematical expressions of N for the financial arrangements mentioned a1o4e. Ta1le 9 summaries these results.

This is the case 3hen foreign taxes are higher than domestic taxes. This situation is also called the J excess credit K case. 9+ 7o that there is no ris8 premium to 1e added to any financial capital costs.
9=

9.9. The multinational companies cost of capital and regional policy Is the multinational companies cost of capital affected 1y regional policy and to 3hat extent ? The tools naturally a4aila1le for measuring the sensi1ility of a function*o1Decti4e 3ith respect to control 4aria1les are 3ell 8no3n. They are called first deri4ati4es and elasticity. Regional policy may ta8e different forms9C : lo3ering of tax scales& granting of financial aids .interest su1sidies& capital grants&.../ or decreasing of tax 1ase .special depreciation allo3ances& in4estment credits&.../.-ccordingly one can distinguish three channels used 1y the country source in order to attract foreign direct in4estment : da& dgL9; and d-& so that the first deri4ati4es and elasticity expressions can 1e 3ritten as follo3s :

P P P & and a g N A
p &a = P a . a P

p & g =

P gN . gN P

p & A =

P A . A P

3here P = p + T-)L 9 : "inancial capital costs& N& on foreign in4estments Method of financing -utonomous financial policies of the affiliate !. )orro3ing in the host country 9. Retention 1y the affiliate
r ..! MM /

Mathematical expression for N

r .! mb / ! z

%arent*dependent financial policies orrowing by the parent

This listing is not of course exhausti4e. The sym1ol gL is here different of this one& g& defined in .!/. The first is a F 4aria1le*instrument F measuring the height of the net su1sidy granted in the source country. The second is a F 4aria1le*result F assessing the net ad4antage recei4ed 1y the group& ta8ing into account the dou1le taxation system on the profits of the parent and of its affiliate. The analytical expressions for g and gL 3ill 1e gi4en in section <.
9C 9;

<. Lending to the affiliate =. %urchase of ne3 shares issued 1y the affiliate New shares issues by the parent +. Lending to the affiliate C. %urchase of ne3 shares issued 1y the affiliate !etentions by the parent ;. Lending to the affiliate '. %urchase of ne3 shares issued 1y the affiliate

rh .! h / + r N " M r h .! h / M
r +rN "

r .! mb / .! ms / M .r + r N " /.! mb / . M h / + .! z / r .! mb / . h / + .! z /
M

7ource : -LBORT@ .!:''/& p. !=9

Bhere M is defined as follo3s : M .! M M / h .! h / & for the credit system 3ith or M .! M M / h .! wb / & 3ithout deferral& for the exemption system& M M M .! / h [ ! wb .! a /h ] & for the deduction system 3ithout deferral and M .! M M / h .! wb h / for the deduction system 3ith deferral& M and are the proportions of interest payment 3hich are deducti1le from the tax 1ase. M refers to a de1t incurred 1y the affiliate and & 1y the parent& m1&? and ms are the personal tax rates on interest income& on accrued capital gains9' and on di4idend payments& 31 is the 3ithholding tax rate on remittances 1y the affiliate to the parent& rL is the interest rate on intracompany 1orro3ings 3hich may not coincide 3ith the mar8et interest rate& r. The cost of capital is defined in gross terms. It corresponds in .!/ to p O . This choice is con4enient 1ecause it permits to a4oid generally in numerical examples& a 4alue of capital cost around ?ero and therefore a sensi1ility of the elasticity sign to the capital cost sign. The cost of capital& %& Dust as parameters a & gL and - are defined considering an in4estment proDect 3ith an initial cost of one monetary unit. Therefore& the first deri4ati4es express the 4ariation in the after*tax rate of return& result of a unit change in corporate tax rate& in grant rate or in depreciation allo3ance9:. The elasticity 4alues pro4ide on the other hand a pure measure 1y ma8ing the ratio of 4ariation percentages respecti4ely of the in4estment proDect rate of return and of each control 4aria1le.
9' 9:

It is the effecti4e tax rate measured on an accrual 1asis from capital gains. 7ee 2ING .!:;;/. It is the present discounted 4alue of depreciation allo3ances 1y in4estment unit.

'

The next section 3ill expound some of the most interesting results o1tained 1y this approach. I shall disregard the pu1lic policies 3hich operate a decrease of tax 1ase in order to focus on lo3ering of tax scales . da / and granting of financial su1sidies . dgL /. In the remainder of the paper& the former approach 3ill 1e specified as a pure tax policy and the latter& as a pure financial aid. <. T@ M-IN R 7#LT7 In order to display the maDor role of international tax rules on the capital cost of multinationals& the 1est 3ay is to point out ho3 different are the analytical expressions of our indicators . first deri4ati4es and elasticity 4alues / for the 4arious com1inations of financial arrangements and systems of dou1le tax relief. That is 3hat is precisely done for the first deri4ati4es of pre*tax rate of return 3ith respect to capital grant rate. The analytical expressions 1ecome really more and more complex successi4ely for the corresponding elasticity& the deri4ati4e and the elasticity of capital cost 3ith respect to the corporation tax rate in the source country. -ccordingly they are not reproduced here. In all cases& numerical 4alues 3ill 1e gi4en for illustrating the di4ersity of the effects of a lo3ering of tax schedules or of an increasing of capital grant for the different considered com1inations of financial arrangements and systems of dou1le tax relief. The present section is di4ided into three su1sections focusing respecti4ely on financial grant& on tax cut and on a comparison 1et3een these 1oth pu1lic policies aimed at attracting foreign direct in4estment. )ut 1efore examining the results& the numerical 4alues of tax and general parameters are to 1e specified to ma8e explicit the scenario illustrating the approach. One assumes that interest payments are fully deducted from the tax 1ase& 3hether the de1t is incurred 1y the affiliate or 1y the parent. -ccordingly M and are e6ual to unity. The corporate tax rates in source and home countries& a and h & are respecti4ely e6ual to <, P and =, P. a and h & the opportunity costs of retaining profits in source and home countries are e6ual to unity. There is no 3ithholding tax on remittances 1y the affiliate to the parent so that 31 is set to ?ero. The interest rates& r and rL& are assumed to 1e e6ual to ' P. m 1& ms and ? & the personal tax rates on interest income& di4idend payments and accrued capital gains are e6ual to !, P& !, P and , P& respecti4ely<,. -& the present 4alue of tax sa4ings from straight*line depreciation allo3ances is defined 1y the follo3ing expression

! Nu M .! e N# / e du = # N#

3here L& the asset life for tax purposes is assumed to 1e e6ual to !, . years /. Moreo4er the capital stoc8 depreciates at an exponential rate e6ual to 9QL& that is to say that is 3orth ,.9. g is the present 4alue of capital grant after all corporate taxes on an unit of capital. Today policy ma8ers are used to define the capital grants in terms of net e6ui4alent su1sidies. This concept& denoted 1y gL& refers to the present discounted 4alue of cash payments net of corporate tax. It
The tax parameters ha4e 1een chosen to 1e appropriate for illustrating the approach 3ithout generating too many non*neutralities among the methods of financing. Generally the tax systems are responsi1le for much more distortions than those 3hich are present here through the 4alues gi4en to the parameters h & g & & & 31 &&m1 & ms and ?.
<,

is defined a priori in the country 3hich grants the financial aid in function of the tax parameters in use in the Durisdiction. @ere one assumes that gL is e6ual to .! a / G .i.e. gL is e6ual to ,.!9/ 3here G denotes the gross grant rate 1efore all taxes <!. Of course for a multinational company& the ultimate ad4antage& g & 3ill depend on the system of dou1le tax relief. "inally the net capital grant g 3ill 1e e6ual to .! M / G . One also considers that the in4estment is entirely 6ualifying for straight*line depreciation allo3ances and for granting a capital su1sidy. Therefore& f! and f< are e6ual to unity and f9 &to ?ero. That is to say that no immediate expensing is admitted. Last general assumption& the income of foreign affiliate& net of corporate tax in the source country is assumed to 1e entirely paid as di4idend to the parent company. -ccordingly G a is e6ual to .! a /a Ya . This amount& once the personal and corporate taxes in the home country ha4e 1een deducted& is distri1uted to the ultimate shareholder 3ho recei4es G h& e6ual to .! M /MYa . <.!. The financial grant and the capital cost of multinational companies Bhat is the effect of an increase of one cent in the capital su1sidy granted to an in4estment of one monetary unit on the capital cost of multinational companies ? It strongly depends 1oth on the financial arrangement and on the system of dou1le tax relief& as sho3n in ta1le <. Ta1le < exhi1its the analytical expressions of the first deri4ati4es of gross capital cost 3ith respect to capital grant<9. xcept the case of retention 1y the affiliate the first deri4ati4es loo8 4ery different for most financial arrangements according to the tax relief systems. They also appear to 1e 4ery disparate for each mode of reducing or eliminating international dou1le taxation 3hen the different methods of financing are compared the ones against the others. In order to illustrate ho3 different are the results of first deri4ati4es& some numerical 4alues ha4e 1een gi4en to the parameters. Results of this approach are sho3n in ta1le =. -s already mentioned the scenario 3hich is considered rather minimises tax distortions 3ith respect to 3hat is usually recorded in the tax systems of most countries. The cost of capital 4alues and the corresponding elasticity 4alues 3ith respect to capital grant are also sho3n in ta1le =. The first statistics appear in italics& the second in 1old type. Bhat lessons can 1e dra3n from the reading of ta1le = ? Let us first ha4e a loo8 at the deri4ati4es results. - capital su1sidy e6ui4alent to one cent granted to an in4estment proDect 3ith an initial cost of one monetary unit yields a lo3ering of the gross capital cost 1et3een ,.9;; and ,.=<< cent. The results dispersion loo8s important : 3hile the arithmetical a4erage of the first deri4ati4es is 3orth around *,.<=!& the standard de4iation amounts to ,.,<!. The corresponding results expressed in terms of elasticity are the follo3ing. -n increase of one percent of capital grant .gL/<< in4ol4es a decrease of gross capital cost 1et3een ,.!9' and
7ince a has 1een set to ,.<& G is 3orth roughly !;.!= P. P P g g ! M <9 . 7ol4ing comes to sol4e 3here = gN g gN g N ! a << That is to say a rise of ,.!9 cent for an in4estment 3ith an initial cost of one monetary unit.
<!

!,

,.!:' P. The arithmetical a4erage of elasticity results is e6ual to ,.!;! P and the standard de4iation& ,.,!+ P. It seems therefore that the yield of a regional policy aimed at attracting foreign direct in4estment is strongly affected 1y the international tax system. Let us compare the results line 1y line in ta1le =. The first deri4ati4es loo8 higher in a1solute 4alues and 1y decreasing order for the tax regimes admitting deferral . deduction& then credit /. 7hould one reason in terms of elasticity& the sensi1ility appears to 1e upper for the exemption system<=. Bhate4er the indicator one chooses& regional policy has al3ays an upper yield .in decreasing the gross capital cost 4alues/ 3hen deferral is applied rather than 3hen tax lia1ility on foreign profits are immediate. -ctually 3hen the deferral is applied& the home country Treasury is ma8ing a free*interest loan on the deferred taxes. - particular result appears for the financing 1y retained profits of the affiliate. The sensi1ility of capital cost to capital grant * if 3e consider the deri4ati4es indicator * is strictly identical 3hate4er the dou1le tax relief system. Ta1le < : 7ensi1ility of gross capital cost 3ith respect to capital grant -nalytical expressions of the first deri4ati4es gN a. -utonomous financial policies of the affiliate
)orro3ing in the host country 5redit 3ith deferral Retention 1y the affiliate

f < [ .! M h / r + ] ! a

f < [ .! mb /.! z / ! r + ] !a

5redit deferral

no

f < [ .! Ma / r + ] ! a

f < [ .! mb /.! z / ! r + ] !a

5redit 3ith deferral

f < [ .! Ma / r + ] ! a

f < [ .! mb /.! z/ ! r + ] !a

xemption

f < [ .! Ma / r + ] ! a

f < [ .! mb /.! z/ ! r + ] !a

$eduction no deferral
<=

f < [ .! M R / r + ] ! a

f < [ .! mb /.! z/ ! r + ] !a

This result is mainly explained 1y the 3ea8er 4alues of the gross capital cost recorded for the exemption system.

!!

$eduction 3ith deferral

f < [ .! Ma / r + ] ! a

f < [ .! mb /.! z/ ! r + ] !a

1. %arent*dependent policies : 1orro3ing 1y the parent


Lending to the affiliate 5redit no deferral %urchase of ne3 shares issued 1y the affiliate

f < [ r .! h / + r N h .! M / + ] !a
M f < [ ra + r N h .a a / + ]

f < [ r .! h / + ] ! a f < [ r .! h / + ] ! a

5redit 3ith deferral

! a

xemption

f < [ . r h + r N . N ! + wb //h!a! + ] ! a

f < [ r .! h /a! + ] ! a

$eduction no deferral

f < ( h r + r N . h .! M R / ) h! ! + ! a

]
]

f < [ r .! h / ! + ] ! a

$eduction 3ith deferral

f < ( h r + r N. N h h .! wb h //) h!a + f < [ r .! h /a! .! h / ! + ] ! a ! a

c. %arent*dependent policies : ne3 shares issues 1y the parent

Lending to the affiliate 5redit deferral no


! f < [ r h + r N h .! M / + ]

%urchase of ne3 shares issued 1y the affiliate

! a

f < [ rh! + ] ! a

5redit 3ith deferral

f < [ rh! + r N a .! M / + ] ! a

f < rh! + ! a

xemption

!9

f < [ rh!a! + r N a .! Ma a! .! wb // + ] ! a

f < [ rh!a! + ] ! a

$eduction no deferral

f < [ . r + r N.h .! M R / //h! ! + ] ! a

f < [ rh! ! + ] ! a

$eduction 3ith deferral

f < [ ra!h! + r N .! M a a! / + ] ! a

f < [ ra!h! + ] ! a

d. %arent*dependent policies : retentions 1y the parent


Lending to the affiliate 5redit no deferral %urchase of ne3 shares issued 1y the affiliate

f < ( . r + r N hh .! M //.! mb / ) .! z / ! + ! a

f < [ rh! + ] ! a

5redit 3ith deferral

f < ( . r + r N . aM ! h //.! mb / ) + ! a

]
]

f < [ r .! mb / + ] ! a f < [ r .! mb / + ] ! a

xemption

f < ( . r + r N h . N! + wb //.! mb / ) + ! a

$eduction no deferral

f < . r + r N .h .! M R / //.! mb / + ! a

[(

f < r .! mb / + ! a

$eduction 3ith deferral

f <.r .! mb / f < ( . r + r N . h Nh .! wb h ///.! mb / ) . $ + ! z / ! + .

! a

. $ + ! z / ! + // Q .! a /

3here = h .! Mh / & h = h .! h / & a = h .! a / & M = aM .! Mh / & N = a .! Ma / &

!<

M = .! / & a = h .! M a / &
h h

= h .! a / & = .! h / ! .! a / &

= [ h . !/ ! + ! z] &
!

= a + h .! a /

and R = a + h .! a / ! & = .! mb /.! ms / ! &

= .! wb h /.! h / ! & = [ h . !/ + ! z] & = [ h .a !/ + ! z ] &


! !

$ = h [ a .! h / !] & = h .! wb .! a / h / .

!=

Ta1le = : 7ensi1ility of capital cost 3ith respect to capital grant - numerical example of 4alues o1tained 1y the first deri4ati4es a. -utonomous financial policies of the affiliate )orro3ing in the host country 5redit no deferral 5redit 3ith deferral xemption $eduction no deferral $eduction 3ith deferral *,.<!! %&'() -0.178 *,.<9< %&'(( -0.185 *,.<9< %&'(( -0.185 *,.9:! %&'&& -0.165 *,.<9< %&'(( -0.185 Retention 1y the affiliate *,.<=C %*'+, -0.168 *,.<=C %-'(-0.180 *,.<=C %-'(-0.180 *,.<=C %.'+) -0.139 *,.<=C %-'(-0.180

1. %arent*dependent policies : 1orro3ing 1y the parent Lending to the affiliate 5redit no deferral 5redit 3ith deferral xemption $eduction no deferral $eduction 3ith deferral *,.<!! %&'() -0.178 *,.<9< %&'(( -0.185 *,.9;; &/'(( -0.196 *,.9;; &.'() -0.146 *,.<9< %&'(( -0.185 %urchase of ne3 shares issued 1y the affiliate *,.<!! %&'() -0.178 *,.<9< %&'(( -0.185 *,.<!! &.'.. -0.187 *,.<!! %*'%+ -0.128 *,.<+; %*'() -0.178

c. %arent*dependent policies : ne3 shares issues 1y the parent

!+

Lending to the affiliate 5redit no deferral 5redit 3ith deferral xemption $eduction no deferral $eduction 3ith deferral *,.<+; %)'.& -0.165 *,.<;C %)'// -0.175 *,.<9< %&'(( -0.185 *,.<9< %+'(* -0.149 *,.<:: %/',* -0.172

%urchase o ne3 shares issued 1y the affiliate *,.<+; %)'.& -0.165 *,.<;C %)'// -0.175 *,.<+; %*'() -0.178 *,.<+; -&'*/ -0.136 *,.=<< -('.) -0.168

d. %arent*dependent policies : retentions 1y the parent Lending to the affiliate 5redit no deferral 5redit 3ith deferral xemption $eduction no deferral $eduction 3ith deferral *,.<=C %*'+, -0.168 *,.<C< %*')/ -0.177 *,.<!+ %('%. -0.186 *,.<!+ %*'/. -0.152 *,.<'< %+'*% -0.174 %urchase of ne3 shares issued 1y the affiliate *,.<=C %*'+, -0.168 *,.<C< %*')/ -0.177 *,.<=C %-'(-0.180 *,.<=C %.'+) -0.140 *,.=!= %.'%% -0.170

#sing the elasticity statistic leads to different sensi1ility results according as a deferral is applied or not. This comment is due to the cost of capital 4alues 3hich strongly rise 3hen no deferral is admitted. Bithout the tax deferral pri4ilege the e6uity cost for retained earnings of the affiliate is o14iously increased 1y the 4alue of the tax deferral. Let us continue 1y the results comparison column 1y column. Bithout surprise the 1orro3ings 1y the affiliate either to the parent company or locally are the cheapest methods of financing. These financial policies pro4ide the lo3est costs of capital<+. Once again& the result gi4es rise to opposite diagnoses of the sensi1ility of capital cost to regional policies according as one reasons in terms of deri4ati4es or in terms of elasticity. The
xcept for the credit systems . 3ith or 3ithout deferral / 3hen the finance is pro4ided 1y retentions of the parent company 3hich in turn lends to the affiliate or purchases ne3 shares issued 1y the affiliate.
<+

!C

first deri4ati4es are generally<C upper for financing 1y e6uity rather than 1y de1t. The situation is strictly contrasted for the elasticity results. <.9. The lo3ering of tax scales and the capital cost of multinational companies Bhat is at present the impact of lo3ering tax scales on the capital cost of multinational companies ? -s mentioned earlier& the analytical expressions of the sensi1ility indicators are really too complex to 1e reproduced here. The ta1le + exhi1its therefore only the numerical 4alues of the first deri4ati4es and the elasticity 4alues of the capital cost 3ith respect to corporate tax scale in the source country. Bhat lessons can 1e dra3n from the reading of ta1le + ? Insofar as the lo3ering of tax rate is pro4ided to multinational corporations& its effecti4eness 3ill depend upon the methods used to relie4e international dou1le taxation in the residence country. @ence there is a clear di4ersity among the results in ta1le + 3hen comparing lines the ones against the others& except for the autonomous financial policies of the affiliate .ta1le +a/. "or the exemption and the deduction .3ith and 3ithout deferral/ systems& results also loo8 4ery different according to the method of financing. This comment is expressed from the reading of ta1le + column 1y column. A priori a positi4e sign is expected for the deri4ati4es and the elasticity 4alues . - lo3ering of tax scale on corporation should reduce the capital cost of multinational companies. The ta1le + sho3s that the results are matching 3ith the expectations only for less than =, P of cases. The sensi1ility of capital cost 3ith respect to the lo3ering of corporate tax rate a from <,P to 9:P is sometimes negati4e& sometimes positi4e and sometimes e6ual to ?ero. - lo3ering of tax rate 8eeps the cost of capital unchanged 3hen the credit method 3ithout deferral is applied. In this case& the tax department of the residence country allo3s taxes paid in the host country as a credit against its o3n tax lia1ility. If the source country lo3ers the corporate tax rate and if one assumes that there is no Fexcess creditL<; it is the Treasury of the residence country rather than the parent company that 1enefits from the incenti4e pro4ision. The deri4ati4es and elasticity results are positi4e in accordance 3ith the a priori expectations& 3hen the in4estment is financed 1y retained earnings of the affiliate and 3hen the finance is pro4ided 1y purchase of ne3 shares from the

The restrictions expressed a1o4e in note .<!/ are also to 1e considered. It is also the case 3hen a full credit is applied against the domestic tax lia1ility for taxes paid a1road. #nder this pure credit system& the refund of unused credits is e4en allo3ed.
<C <;

!;

Ta1le + : 7ensi1ility of gross capital cost 3ith respect to corporate tax rate - numerical example of 4alues o1tained 1y the first deri4ati4es a. -utonomous financial policies of the affiliate )orro3ing in the host country 5redit no deferral 5redit 3ith deferral xemption $eduction no deferral $eduction 3ith deferral , %&'() 0 *,.,+ %&'(( -0.07 *,.,+ %&'(( -0.07 *,.,+ %&'&& -0.07 *,.,+ %&'(( -0.07 Retention 1y the affiliate , %*'+, 0 ,.,' %-'(0.11 ,.,' %-'(0.11 ,.!; %.'+) 0.18 ,.,' %-'(0.11

1. %arent*dependent policies : 1orro3ing 1y the parent Lending to the affiliate 5redit no deferral 5redit 3ith deferral xemption $eduction no deferral $eduction 3ith deferral , %&'() 0 *,.,+ %&'(( -0.07 *,.!, &/'(( -0.18 *,.9= &.'() -0.38 *,.,+ %&'(( -0.07 %urchase of ne3 shares issued 1y the affiliate , %&'() 0 *,.,+ %&'(( -0.07 ,.,= &.'.. 0.06 ,.!, %*'%+ 0.12 ,.!, %*'() 0.12

c. %arent*dependent policies : ne3 shares issues 1y the parent

!'

Lending to the affiliate 5redit no deferral 5redit 3ith deferral xemption $eduction no deferral $eduction 3ith deferral , 9+.:! , *,.,+ 9+.;; *,.,C *,.,+ 9!.,, *,.,; *,.!; 9C.,= *,.9, ,.,+ 9;.'= ,.,+

%urchase of ne3 shares issued 1y the affiliate , 9+.:! , *,.,+ 9+.;; *,.,C ,.!, 9=.,+ ,.!9 ,.9, <!.=; ,.!: ,.9, <,.:+ ,.!:

d. %arent*dependent policies : retentions 1y the parent Lending to the affiliate 5redit no deferral 5redit 3ith deferral xemption $eduction no deferral $eduction 3ith deferral , %*'+, 0 *,.,+ %*')/ -0.06 *,.,+ %('%. -0.07 *,.,, %*'/. -0.00 ,.,= %+'*% 0.05 %urchase of ne3 shares issued 1y the affiliate , %*'+, 0 *,.,+ %*')/ -0.06 ,.,' %-'(0.11 ,.!; %.'+) 0.18 ,.!; %.'%% 0.18

parent .under the exemption and deduction systems of dou1le taxation relief<'/. In a1solute terms& the 4alues of the sensi1ility indicators appear to 1e 3ea8. I shall come 1ac8 to this 6uestion in the next su1section 3hen I shall compare 1oth policies .lo3ering of tax rate and capital grant/. More often& the deri4ati4es and elasticity results are negati4e . This means that the cost of capital is increasing 3hen the corporate tax rate is lo3ering. This is particularly the case 3hen the affiliate finances the in4estment 1y 1orro3ing& locally or to the parent company or 3hen
%ositi4e 4alues for the sensi1ility indicators are also o1ser4ed 3hen the finance is pro4ided 1y a loan from the parent to the affiliate& under the deduction system 3ith deferral& and 3hen the parent company raises funds either 1y issuing ne3 e6uity domestically or 1y retaining its o3n earnings.
<'

!:

the residence country applies the credit system 3ith deferral. This last system is precisely implemented 1y the tax department in the #.7.-.& #nited 2ingdom and >apan. @o3 to explain that the sensi1ility indicators are negati4e ? - lo3ering in the corporate tax rate generates three effects : the first is direct& the second and the third are induced: * the direct effect implies a immediate reduction of the capital cost S * the second effect ta8es place through the intermediary of the financial cost& N& 3hich may increase. This is mainly the case 3hen the in4estment is financed 1y a 1orro3ing of the affiliate& locally or to the parent company. The net financial cost is& in that 3ay& e6ual to the proportion of interest payments that are not deducti1le from the tax 1ase<: S * the third effect occurs 4ia tax sa4ings due to depreciation allo3ances and 4ia grant capital. $epreciation allo3ances and capital grant 4alues are often affected 1y the corporate tax rate through a dou1le mechanism. On the one hand& the tax sa4ings and the net e6ui4alent su1sidy .after corporate tax/ are of course function of the tax rate height. On the other hand& if the depreciation for tax purpose is not immediate=, and if the financial aid is distri1uted on se4eral stages& the cash flo3s ha4e to 1e discounted. The discount rate is defined 1y the financial cost. In this exercise& I consider a pure tax ad4antage so that g is assumed to 1e in4ariant 3hate4er the 4alue of a=!. This amounts to saying that the capital grant is defined in terms of net e6ui4alent su1sidy. -s I assume for the sa8e of simplicity that the pu1lic aid is totally paid the day 3here the in4estment expenditure ta8es place& no discounting is re6uired. In these conditions& the third effect mentioned a1o4e is only induced 1y a 4ariation of the present 4alue of depreciation allo3ances. The lo3ering of the corporate tax rate a may reduce the discounted 4alue of tax sa4ings due to depreciation allo3ances through a dou1le possi1le 3ay. )ecause
M .! e N# / A= N#

- is decreasing t3ice 3ith a respecti4ely 3hen M depends on a first and secondly 4ia N 3hen N increases. Bhether the sign of sensi1ility indicator is positi4e or negati4e depends upon the relati4e 3eight of three effects : the first operates positi4ely& the t3o others& negati4ely. The reading of ta1le + re4eals that the second and the third effects often dominate the first one so that the sensi1ility indicator is often negati4e. <.<. 5omparing 1oth pu1lic policies

The financial cost is o14iously measured for an in4estment expenditure of one monetary unit. This is the case for the immediate expensing. =! Of course it may 1e different according to the considered system of relie4ing dou1le taxation 1ut inside a particular system& g is constant.
<: =,

9,

Bhat is the 1est policy to 1e implemented : a capital grant or a lo3ering=9 of corporate tax rate ? In order to compare 1oth policies& it is necessary to consider an identical shoc8& i.e. a same cost for the pu1lic sector. )y assumption& the cost associated to the capital grant 5g is e6ual to one cent for an in4estment proDect of one monetary unit& 5g T dg T ,.,! Ta1le + examines the impact of a lo3ering in the tax rate from <, to 9:P on the capital cost 4alues. The total cost of this policy 5 corresponds to the tax re4enue foregone on the income from ne3ly installed capital. )ecause economic depreciation has 1een assumed to 1e exponential at rate & the present 4alue of 543 is :
0 = d a Pe . N + / u du =
,

d a P N +

3here %e*.NO/ expresses nominal profits 3hich increase at the rate of inflation& decrease in 4alue at the rate of depreciation and are discounted at the rate N. -pplied to our scenario& 5 4aries 1et3een ,.:!; and !.9+: cent according to the 9< rele4ant cases==. "or an e6ual pu1lic cost& it appears that granting a capital su1sidy has a 1etter yield than lo3ering the corporate tax rate. Other scenarios are studied in )INON et MIGNOL T .!::;/& in particular 3hen excess credit is o1ser4ed .this is the case 3hen a U h/. Those results do not modify my general conclusion : a capital su1sidy is almost al3ays a 1etter policy choice than a lo3ering of tax scale. T3o last remar8s 1efore concluding... "irst& a tax cut 1enefits 1oth to ne3ly installed and to existing capital. This aspect has 1een ignored here 1ecause I only focus on regional policy aimed at fostering the formation of ne3 capital. Including this feature implies that one reasons in terms of average effective tax rate and not on marginal effective tax rate on income from capital. IB-MOTO .!::9/=+ opens up some promising research prospects in this field. 7econd& space is not neutral as the neo*classical theory expects. Marginal producti4ity of an in4estment proDect is not the same 3here4er it is located. MIGNOL T .!::'/ extends the cost of capital frame3or8 1y accounting for space. 5ON5L#7ION
I disregard the paradoxical cases 3here the first deri4ati4es of the capital cost 3ith respect to the corporate tax rate in the source country a is negati4e. This situation is o1ser4ed not less than !; times out of =, in ta1le +.In these cases& an increasing of the corporate tax rate in the source country is lo3ering the cost of capital 4alue. =< One ignores in this measure the induced effects on the discounted 4alue of depreciation for tax purposes and on the financial cost. == 7ee note <'. The only cases considered are those for 3hich the first deri4ati4e of % 3ith respect to a is positi4e .!+ cases out of =,/ or e6ual to ?ero .' cases out of =,/. =+ 7ee also MIGNOL T .!::=/ for a first generali?ation integrating personal taxation and MIGNOL T et T@IRION*M-T@I # .!::=/ for an illustration.
=9

9!

The present paper sho3ed that the regional policy impact on capital cost of multinational companies is extremely 4aria1le according to the international tax system in use and to the 3ay implemented to attract foreign in4estment. "irst& the yield of a same policy depends on the method of alle4iating the international dou1le taxation : credit 3ith or 3ithout deferral& exemption& deduction 3ith or 3ithout deferral. 7econdly& different policy tools generate differentiated effects. Bhat is to 1e recommended : a reducing of the corporate tax rate or and increasing of the capital su1sidy=C ? The former policy has 1een implemented in the free enterprise ?ones .in the #nited 2ingdom/ or in similar policy approaches in Ireland or in the uropean $e4elopment -rea& for example. The latter is the commonly used tool in numerous countries and is moreo4er promoted 1y the 7tructural "unds policy. Bhate4er the system of relie4ing dou1le taxation and the financial arrangement to finance the in4estment& the present study re4eals that a capital grant is a 1etter policy than an e6ui4alent lo3ering of corporate tax rate. Bould the location decision 1e elastic to the capital cost of a marginal in4estment=; & one must accept the idea that a capital su1sidy is a 1etter incenti4e to attract foreign in4estment. The result is explained 1y the fact that a lo3ering of tax rate is reducing the present 4alue of depreciation allo3ances and& in some financial arrangements& is increasing the financial cost used for discounting cash flo3.

R " R N5 7
-# R)-5@ -. .!:'</& 5orporate taxation in the #nited 7tates& 9& !,;*!9;. roo$ings Papers on 1conomic Activity & 4ol

-LBORT@ >.7. .!:''/& The finance2 investments and taxation decisions of multinationals & )asil )lac83ell& Oxford. )-5@ TT- %. .!::</& Regional in4estment and gro3th in the )arcelona. uropean 5ommunity& mimeo& I.-. .&

) GG @. and Mc $OB L 7. .!:';/& The effect of regional in4estment incenti4es on company decisions& !egional studies& 9!& =+:*=;,. )INON ". et MIGNOL T M. .!::;/& Le coVt du capital des sociWtWs multinationales et la politi6ue rWgionale : 6uel6ues dW4eloppements& mimWo& 9! p.& facultW des sciences Wconomi6ues& sociales et de gestion& Namur. )O-$B-A R.B. .!:';/& The theory and measurement of effecti4e tax rates& in >.M. MINTH and $.$. %#R(I7& eds.& The impact of taxation on business activity & >ohn $eutsch Institute of conomic %olicy& 2ingston. 5 .!::9/& Rapport du comitW de reflexion des experts indWpendants sur la fiscalitW des entreprises& mars& )ruxelles.

)oth policies ha4e 1een defined in such a 3ay that they gi4e rise to a same discounted cost for the pu1lic sector. =; In this study& the fact that a lo3ering of corporate tax scales also 1enefits to the existing capital has 1een left aside. Of course& this tax cut for the already installed capital that is disregarded here 3ould also generate additional costs for the pu1lic sector.
=C

99

.).R.$. . uropean )an8 for Reconstruction and $e4elopment / .!::</& %rogress in reform& 1 !3 1conomic 4utloo$& =C*+=. "-INI R.& G-LLI G. and GI-NNINI 5. .!::</& "inance and de4elopment : the case of 7outhern Italy& in GIO(-NNINI -.& ed.& 5inance and development 6 issues and experience & 5am1ridge #ni4ersity %ress& !+'* 9!<. G#IOT 7. et MIGNOL T M. .!::+/& La politi6ue rWgionale europWenne et le coVt du capital : application X la Martini6ue et au @ainaut dLun modYle de taxation internationale& !evue d71conomie !8gionale et 9rbaine & 9& 9'<*<,,. @-RRI7 R.I.$.& .!:'</ The measurement of capital ser4ices in production in #.2. industries !:C'*!:;:& !egional studies& !;& !C:*!',. @ -$ 5.2.& RI 7 >.5. and 7B N7ON $.L. .!::=/& The attraction of foreign manufacturing in4estments : in4estment promotion and agglomeration economies& N) R 3or8ing paper =';'& Octo1er. @ 7% L -. .!::;/& Les centres de coordination et la taxation internationale& mWmoire de fin dLWtudes& !9! p.& facultW des sciences Wconomi6ues& sociales et de gestion& Namur. IB-MOTO A. .!::9/& ffecti4e tax rates and To1inLs 6& :ournal of public economics & ='& 99+*9<;. >ORG N7ON $.B. and L-N$-# R. .!::</& eds& Tax reform and the cost of capital 6 an international comparison& The )roo8ings Institution& Bashington. 2ING M.-. .!:;;/& Public policy and the corporation & 5hapman and @all& London. 2ING M.-. and "#LL RTON $. .!:'=/& The taxation of income from capital & N) R& #ni4ersity of 5hicago %ress& 5hicago. MIGNOL T M. .!::'/& To3ard a J spatiali?ed K cost of capital concept& in $. GRI""IT@& 5.G. -MR@ IN and >.*M. @#RIOT .eds/& Advances in spatial modelling and methodology 6 1ssays in honour of :ean Paelinc$ & 2lu3er -cademic %u1lishers& $ordrecht& forthcoming. MIGNOL T M. .!::=/& ffecti4e tax rates : a generali?ation of I3amotoLs .!::9/ result& 0ahier de la facult8 des sciences economi;ues et sociales de Namur& !<<. MIGNOL T M. .!::9/& LLW4aluation des politi6ues rWgionales : lLexemple des aides X lLin4estissement& in $ RA52 %.*@.& ed.& 1spaces et dynami;ues territoriales & conomica& %aris& 9C<*9:,. MIGNOL T M.& %IR-#E T. et ( R 52 -. .!::;/& Le coVt du capital et les politi6ues rWgionales : une application X six rWgions europWennes& 0ahiers 1conomi;ues de ruxelles & !+<& +!*!!+. MIGNOL T M. et T@IRION*M-T@I # -. a4ec la colla1oration de 7. G#IOT .!::=/& La politi6ue fiscale et ses incidences rWgionales : 6uel6ues WlWments dL analyse et dLW4aluation& in $ 75@-M%7 R.& >-5Z# MIN >.5. et MIGNOL T M.& eds.& 5inances publi;ues r8gionales et f8d8ralisme fiscal & %resses #ni4ersitaires de Namur& Namur. N ( N $.>. and GO#A TT $iscussion paper :!=& "e1ruary. 5. .!::=/& Regional con4ergence and the uropean 5ommunity& 5 %R

O 5$ .!::!/& Taxing profits in a global economy2 domestic and international issues & %aris. O#G@TON 5. .!::</& Gro3th& structural change and real con4ergence in the 1uropean competitiveness & 5am1ridge #ni4ersity %ress& 5am1ridge. .5.& in @#G@ 7 2.7.& ed&

%I RR I. .!::C/& Le treaty shopping& la taxation effecti4e et le coVt du capital des sociWtWs multinationales& ulletin de documentation du "inist<re des 5inances2 !& '<*!+,. 7@-@ -. .!::+/& ed& 5iscal =ncentives for =nvestment and =nnovation & Oxford #ni4ersity %ress& Oxford. T-NHI (. .!::+/& Taxation in an integrating world& The )roo8ings Institution& Bashington.

9<

AO#NG 7. and @OO$ N. .!::</ In3ard in4estment policy in the Transnational corporations& 9.9/& <+*C9.

uropean 5ommunity in the !::,Ls&

AO#NG 7.& @OO$ N. and % T R7 . .!::=/& Multinational enterprises and regional economic de4elopment& !egional studies& 9'.;& C+;*C;;.

9=