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The impact of taxes on the extensive and intensive margins of FDI

Ronald Davies (), Iulia Siedschlag () and Zuzanna Studnicka
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Zuzanna Studnicka: University College Dublin

International Tax and Public Finance, 2021, vol. 28, issue 2, No 8, 434-464

Abstract: Abstract It is well documented that foreign investment inflows are deterred by host taxes. What is less clear, however, is the degree to which these aggregate changes are driven by firm choices at the extensive (whether to invest) or intensive (how much to invest) margins. Further, there is little evidence on the way in which these two margins are affected by firm and home-country characteristics. We contribute by examining firm-level cross-border investments during 2007–2015 into Europe from a broad group of home countries at both investment margins. Similar to the existing single-country studies, we find that taxes operate primarily on the extensive margin. Building on those results, we delve further and find significant variation across firms with small investors from high-tax home countries especially sensitive to host taxation.

Keywords: Foreign direct investment; Taxation; Extensive margin; Intensive margin (search for similar items in EconPapers)
JEL-codes: F14 F23 H25 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: The Impact of Taxes on the Extensive and Intensive Margins of FDI (2016) Downloads
Working Paper: The Impact of Taxes on the Extensive and Intensive Margins of FDI (2016) Downloads
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DOI: 10.1007/s10797-020-09640-3

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