How Low Business Tax Rates Attract Multinational Headquarters: Municipality-Level Evidence from Germany

Notes: 1. All explanatory variables in logs. For the cross-section explanatory variables
are lagged once (i.e. the values are for 2004).

2. The cross section IV regression uses Mullahy’s (1997) multiplicative moment conditions
and the panel IV regression uses Chamberlain’s (1992) transformation for the multiplica-
tive error specification as detailed in the main text.

3. The instruments used in the cross section are the averages of the share of area covered
with buildings and streets, the total area, and the share of agricultural area (all in logs)
for (i) all municipalities within a radius of 0 and 25 kilometers from the center of a given
municipality and for (ii) all municipalities within a radius of 25 and 50 km from the center
of a given municipality. In the panel estimation we use the averages of the share of area
covered with buildings and streets, the share of agricultural area, the independency ratio,
and the skilled labor share for all neighboring municipalities within a 50 km radius.

4. One-Step results. Robust standard errors reported in parentheses. *, **, and ***
indicate significance at 10%, 5%, and 1%, respectively.

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