Fancy a Stay at the 'Hotel California'? Foreign Direct Investment, Taxation and Firing Costs
29 Pages Posted: 31 Jan 2003
Date Written: December 2002
Abstract
This paper looks at the trade off between investment incentives and exit costs for the location of foreign direct investment (FDI). This issue does not appear to have been tackled in much detail in the literature. The analysis considers the effect of profit taxation (as a measure of investment incentives) and an index of hiring and firing costs (proxying exit costs) on the location of US outward FDI in 33 host countries. The results suggest that US FDI, in particular in manufacturing is negatively affected by the level of profit taxation and exit costs. Hence, if countries want to attract FDI it may not suffice that incentives are provided in order to ease the entry of multinationals. Instead, it also appears to be important that exit costs are at a level attractive to multinationals. In other words, multinationals may not check into an attractive looking Hotel California type host country if it is difficult to leave.
Keywords: Foreign Direct Investment, Exit Costs, Firing Costs, Investment Incentives, Taxation
JEL Classification: F23, H25, J65
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By Byoung Jun and Xavier Vives
-
Employment Protection and Globalisation in Dynamic Oligopoly
By Gerda Dewit, Dermot Leahy, ...
-
Employment Protection and Globalisation in Dynamic Oligopoly
By Gerda Dewit, Dermot Leahy, ...
-
Strategic Complementarities in Multi-Stage Games
By Xavier Vives
-
Multinational Investment, Industry Risk and Policy Competition
By Jan I. Haaland and Ian Wooton
-
Should I Stay or Should I Go? A Note on Employment Protection, Domestic Anchorage, and FDI
By Gerda Dewit, Holger Görg, ...
-
Domestic Labour Markets and Foreign Direct Investment
By Jan I. Haaland and Ian Wooton