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Tax-Rate Differentials and Sector Specific Foreign Direct Investment: Empirical Evidence from the EU

Sven Stöwhase

FinanzArchiv: Public Finance Analysis, 2006, vol. 61, issue 4, 535-558

Abstract: This paper analyzes the tax responsiveness of bilateral foreign direct investment flows in the EU. Differentiating between investments in the three main economic sectors and using effective tax rates to measure tax incentives, we show that the tax sensitivity of foreign direct investment depends crucially on the sector the transaction takes place in. While investment in the primary sector is driven by other than tax incentives, investment in the secondary and the tertiary sector is deterred by high tax rates. The response in the tertiary sector is substantially higher than that in the secondary sector.

Keywords: corporate income taxation; foreign direct investment (search for similar items in EconPapers)
JEL-codes: F21 F23 H25 H32 (search for similar items in EconPapers)
Date: 2006
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