The Effects of Company Taxation in EU Accession Countries on German FDI

29 Pages Posted: 12 Apr 2010

See all articles by Michael Overesch

Michael Overesch

Universität zu Köln

Georg Wamser

University of Tuebingen; ETH Zurich

Abstract

This article investigates how company taxation affects German foreign direct investment (FDI) in European Union (EU) accession countries. In 2004 and 2007, 10 former socialist eastern European countries joined the EU. Although the EU integration is associated with increasingly favourable investment conditions, accession countries also pursue active strategies to attract foreign firms. In particular, taxes on corporate income have been significantly reduced during the last decade. We analyse whether corporate tax policies of eastern European countries affect three aspects of multinational activity: the location decision, the investment decision and the capital structure choice. The results suggest that local taxes are negatively related to both location and investment decisions. The analysis of the capital structure confirms that higher local taxes imply higher debt-to-capital ratios.

Suggested Citation

Overesch, Michael and Wamser, Georg, The Effects of Company Taxation in EU Accession Countries on German FDI. Economics of Transition, Vol. 18, No. 3, pp. 429-457, July 2010. Available at SSRN: https://ssrn.com/abstract=1587093 or http://dx.doi.org/10.1111/j.1468-0351.2009.00385.x

Michael Overesch (Contact Author)

Universität zu Köln ( email )

Albertus-Magnus-Platz
WiSo-Gebäude
Cologne, 50923
Germany
0221/470-5605 (Phone)

HOME PAGE: http://www.steuer.uni-koeln.de/

Georg Wamser

University of Tuebingen ( email )

Wilhelmstr. 19
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

ETH Zurich ( email )

Weinbergstr. 35
Zurich, 8003
Switzerland

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