Resource title

Foreign direct investment in the enlarged EU: do taxes matter and to what extent?

Resource image

image for OpenScout resource :: Foreign direct investment in the enlarged EU: do taxes matter and to what extent?

Resource description

Foreign direct investment is of increasing importance in the European Union. This paper estimates the effect of taxes on foreign direct investment (FDI) flows and on three sub-components of these flows for the countries of the en- larged European Union. The model in the spirit of gravity equations robustly explains FDI flows between the 25 member states. Sample selection needs to be addressed in the estimation. We show that the different subcomponents of FDI should and indeed do react differently to taxes. After controlling for unobserved country characteristics and common time effects, the top statutory corporate tax rate of both, source and host country, turn insignificant for total FDI and investment into equity. However, high source country taxes clearly increase the probability of firms to re-invest profits abroad and lower the percentage of debt financed FDI. This might reflect profit re-allocation to avoid taxes. Market size factors have the expected signs for total FDI. Non-productivity adjusted wages as determinants of FDI are less robust.

Resource author

Guntram B. Wolff

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/19640

Resource license

Adapt according to the presented license agreement and reference the original author.