Estimating Tax-Elasticities of Foreign Direct Investment: The Importance of Tax Havens

Peter Schwarz

Economics Bulletin, 2011, vol. 31, issue 1, 218-232

Abstract: Policy makers are increasingly concerned about the effect of taxes on foreign direct investment (FDI). This study shows that for U.S. multinationals – in line with the findings of the majority of previous studies – a reduction in host country tax rates corresponds with higher FDI-stock. The estimated elasticity suggests that a 1% reduction in host country tax rates leads to an increase of total FDI between 0.3% and 1.8%, depending on the specific tax burden indicator. In addition, it is shown that tax elasticity is lower when solely analyzing investments in production, plant and equipment (PPE). Since the latter approximates more closely the concept of real capital than total FDI stock, this indicates that inter-country competition for real capital is less intense. Finally, the tax coefficient declines and is sometimes insignificant when excluding tax havens from the empirical analysis.

Keywords: foreign direct investment; tax burden; tax havens. (search for similar items in EconPapers)
JEL-codes: F2 H2 (search for similar items in EconPapers)
Date: 2011-01-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I1-P23.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-10-00527

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().