Reassessing the Effects of Corporate Income Taxes on Mergers and Acquisitions Using Empirical Advances in the Gravity Literature

We study the relationship between corporate income tax (CIT) rates and mergers and acquisitions (M&As). To this end, we compile a new data set of cross-border and domestic M&A deals for more than 100 countries and 84 sectors, 1995–2019. We implement leading un(der)utilized methods from the empirical gravity literature following a stepwise estimation strategy, which exemplifies the importance of individual empirical refinements. A 1 percentage point increase in target CIT rates decreases the number of cross-border acquisitions by 0.8 percent relative to domestic M&As. The proposed methods should apply more broadly to work investigating the effects of taxation on bilateral flows.