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Labor Taxation and FDI Decisions in the European Union

Åsa Hansson () and Karin Olofsdotter ()

Open Economies Review, 2014, vol. 25, issue 2, 263-287

Abstract: This paper uses panel data on bilateral FDI stocks in the European Union to empirically analyze the impact of labor and corporate taxations on FDI decisions. While the effect of corporate taxes on FDI is well documented, the impact of labor taxes on FDI has barely been explored. This is surprising since labor taxation may influence FDI as well; the taxation of labor affects the production cost and the ability to attract and retain productive labor, and thereby it also, ultimately, impacts the return to the investment. By employing a Heckman two-step estimation model, which controls for possible sample selection bias due to many zero bilateral observations, we find that labor taxes do influence FDI decisions. Copyright Springer Science+Business Media New York 2014

Keywords: Labor taxation; Foreign direct investment; F12; F15; F21; H24; H73 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Labor Taxation and FDI decisions in the European Union (2011) Downloads
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DOI: 10.1007/s11079-013-9282-8

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