Taxation and Foreign Direct Investment: A Synthesis of Empirical Research

32 Pages Posted: 13 Nov 2001

See all articles by Ruud A. De Mooij

Ruud A. De Mooij

International Monetary Fund (IMF); CESifo (Center for Economic Studies and Ifo Institute); Oxford University Centre for Business Taxation

Sjef Ederveen

CPB Netherlands Bureau of Economic Policy Analysis

Date Written: October 2001

Abstract

This paper reviews the empirical literature on the impact of company taxes on the allocation of foreign direct investment. We make the outcomes of 25 empirical studies comparable by computing the tax rate elasticity under a uniform definition. The mean value of the tax rate elasticity in the literature is around -3.3, i.e. a 1%-point reduction in the host-country tax rate raises foreign direct investment in that country by 3.3%. There exists substantial variation across studies, however. By performing a meta analysis, the paper aims to explain this variation by the differences in characteristics of the underlying studies. Systematic differences between studies are found with respect to the type of foreign capital data used, and the type of tax rates adopted. We find no systematic differences in the responsiveness of investors from tax credit countries and tax exemption countries.

JEL Classification: F21, H25

Suggested Citation

De Mooij, Ruud A. and Ederveen, Sjef, Taxation and Foreign Direct Investment: A Synthesis of Empirical Research (October 2001). CESifo Working Paper Series No. 588. Available at SSRN: https://ssrn.com/abstract=287850

Ruud A. De Mooij (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Oxford University Centre for Business Taxation ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

HOME PAGE: http://people.few.eur.nl/demooij/

Sjef Ederveen

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands
+31 70 33 83 373 (Phone)
+31 70 33 83 350 (Fax)

HOME PAGE: http://www.cpb.nl/eng/general/org/homepages/jpe/

Register to save articles to
your library

Register

Paper statistics

Downloads
758
rank
31,414
Abstract Views
3,958
PlumX Metrics