Do Low Corporate Income Tax Rates Attract FDI? Evidence from Eight Central and East European Countries

University of Nottingham Research Paper No. 2005/43

49 Pages Posted: 14 Dec 2005

See all articles by Christian Bellak

Christian Bellak

WU, Vienna University of Economics and BA

Markus Leibrecht

Vienna University of Economics and Business Administration

Date Written: December 2005

Abstract

We estimate a panel of 56 bilateral country-relationships of 7 home and 8 host countries of foreign direct investment (FDI) from 1995-2003 using a panel gravity-model setting to analyze the role of taxation as a determinant of FDI. While gravity variables explain most of the variation of FDI inflows, the bilateral effective average tax rate is also an important determinant of the location decisions and roughly equally important to other cost factors. The semi-elasticity of FDI with respect to taxation is between -3.3 and -4.6, which in absolute terms is above those of earlier studies. This can partly be attributed to using a superior measure of corporate income tax burden.

Keywords: Taxation, Foreign Direct Investment, Multinational Enterprises, Central and Eastern Europe

JEL Classification: F21, H25

Suggested Citation

Bellak, Christian and Leibrecht, Markus, Do Low Corporate Income Tax Rates Attract FDI? Evidence from Eight Central and East European Countries (December 2005). University of Nottingham Research Paper No. 2005/43. Available at SSRN: https://ssrn.com/abstract=869374 or http://dx.doi.org/10.2139/ssrn.869374

Christian Bellak (Contact Author)

WU, Vienna University of Economics and BA ( email )

Welthandelsplatz 1
Vienna, Vienna 1020
Austria
00431313364505 (Phone)

HOME PAGE: http://https://www.wu.ac.at/u/bellak/

Markus Leibrecht

Vienna University of Economics and Business Administration ( email )

Augasse 2-6
A-1090 Wien
Austria

Register to save articles to
your library

Register

Paper statistics

Downloads
781
Abstract Views
5,537
rank
31,274
PlumX Metrics