Bilateral Effective Tax Rates and Foreign Direct Investment

Peter Egger, Simon Loretz, Michael Pfaffermayr and Hannes Winner

No 802, Working Papers from Oxford University Centre for Business Taxation

Abstract: This paper computes effective (marginal and average) tax rates that account for bilateral aspects of taxation and, therefore, vary across country-pairs and years. These tax rates serve to estimate the impact of corporate taxation on outbound stocks of bilateral foreign direct investment (FDI) among OECD countries between 1991 and 2002. The findings indicate that outbound FDI is positively related to the parent and host country tax burden and negatively associated with bilateral effective tax rates. Relying only on unilateral (country and time variant) rather than on both unilateral and bilateral (country-pair and time variant) effective tax rates leads to biased estimates of the impact of corporate taxation on FDI.

Keywords: Corporate taxation; Foreign direct investment; Panel econometrics (search for similar items in EconPapers)
JEL-codes: C33 F21 F23 H25 H73 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (15)

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