Corporate Income Taxation Uncertainty and Foreign Direct Investment

21 Pages Posted: 12 Feb 2013 Last revised: 15 May 2014

See all articles by Martin Zagler

Martin Zagler

Vienna University of Economics and Business - Department of Economics; University of Piemonte Orientale - Facoltà di Economia

Cristiana Zanzottera

Vienna University of Economics and Business

Abstract

This paper analyzes the effects of legal uncertainty, as measured by differences in legal systems, the existence of double tax agreements, and corruption, around corporate income taxation on foreign direct investment (FDI). We find that an increase in the ratio of the statutory corporate income tax rate of the destination relative to the source country exhibits a negative impact on foreign direct investment, as do different legal systems, but not double tax agreements. An interaction term between the tax rate and measures of legal uncertainty find that big tax difference lead to an increase in foreign direct investment given a different legal system or the existence of a double tax agreement. This points to the presence of speculative entry for tax motives.

Suggested Citation

Zagler, Martin and Zanzottera, Cristiana, Corporate Income Taxation Uncertainty and Foreign Direct Investment. WU International Taxation Research Paper Series No. 2012-07, Available at SSRN: https://ssrn.com/abstract=2174928 or http://dx.doi.org/10.2139/ssrn.2174928

Martin Zagler (Contact Author)

Vienna University of Economics and Business - Department of Economics ( email )

Augasse 2-6
A-1090 Wien
Austria

University of Piemonte Orientale - Facoltà di Economia ( email )

Via Perrone, 18
Novara, 28100
Italy

Cristiana Zanzottera

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

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