Corporate taxes and the location of FDI in Europe using firm-level data

Tomas Silva () and Sergio Lagoa ()
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Tomas Silva: Office for Strategy and Studies, Portuguese Ministry of Economy
Sergio Lagoa: Department of Political Economy, ISCTE - University Institute of Lisbon

No 44, GEE Papers from Gabinete de Estratégia e Estudos, Ministério da Economia

Abstract: European countries are facing an ever-increasing competition for Foreign Direct Investment (FDI). This paper studies how corporate taxes affect the location of FDI in Europe. Firm-level data is used to estimate a conditional logit model. We start by analysing the impact of the level and volatility of three different tax rates on FDI. Next, we analyse how economic and monetary integration influences the effect of taxes on FDI. The interaction between taxes and the upward and downward cycles of FDI is also analysed. Finally, we focus on how the impact of taxes depends on project characteristics. We conclude that taxes play a significant role in attracting FDI, but the issues analysed imply that there are some nuances in this relation, many of them relevant for policy makers.

Keywords: FDI; Location; Taxes; Conditional Logit Model (search for similar items in EconPapers)
JEL-codes: F21 H25 H32 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-12, Revised 2011-12
New Economics Papers: this item is included in nep-acc, nep-eur, nep-int and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.gee.gov.pt/RePEc/WorkingPapers/GEE_PAPERS_44.pdf First version, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:mde:wpaper:0044

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