Lessons from behavioral responses to international taxation

This paper considers the impact of international taxation on patterns of fo reign direct investment and on the extent of international tax avoidance ac tivity. Recent evidence indicates that taxation significantly influences th e location of foreign direct investment, corporate borrowing, transfer pric ing, dividend and royalty payments, and R&D performance. Reactions to world wide tax rate differences, as well as to changes in international tax rules , provide important information concerning the extent to which tax-payers r espond to incentives. The generally high degree of responsiveness in turn c arries implications for the design of domestic as well ns international tax policy.