The Impact of State Corporate Taxes on FDI Location

Claudio Agostini

Working Papers from Georgetown University, Department of Economics

Abstract: This paper examines the effects of state corporate income taxes on the location of foreign direct investment in the U.S., taking into account the endogeneity of taxes and the outside options of investors. States have a set of characteristics that influence investors' decisions, some of them are not observable by a researcher but states take them into account when they set taxes. States can also act strategically with respect to other states when setting taxes. The former behavior bias the estimated tax effects because it creates correlation between the error term and the tax rate. The latter behavior directly implies an endogenous tax rate. I adapt a discrete choice model of differentiated products to estimate the tax effects. This approach allows me at the same time to control for the outside options of investors and to use instrumental variables to solve the problem of tax endogeneity. I find the tax elasticity to be consistently around -1.

Keywords: Foreign Direct Investment; State Corporate Income Taxes; Tax Endogeneity. (search for similar items in EconPapers)
JEL-codes: F23 H25 H71 H73 H87 (search for similar items in EconPapers)
Date: 2004-04-10
New Economics Papers: this item is included in nep-acc, nep-dcm, nep-ifn and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www8.georgetown.edu/departments/economics/pdf/410.pdf Full text (application/pdf)
None

Related works:
Journal Article: The Impact of State Corporate Taxes on FDI Location (2007)
Working Paper: The Impact of State Corporate Taxes on FDI Location
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:geo:guwopa:gueconwpa~04-04-10

Ordering information: This working paper can be ordered from
Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
http://econ.georgetown.edu/

Access Statistics for this paper

More papers in Working Papers from Georgetown University, Department of Economics Georgetown University Department of Economics Washington, DC 20057-1036.
Bibliographic data for series maintained by Marcia Suss ( this e-mail address is bad, please contact ).