The Disappearing Tax Base: Is Foreign Direct Investment (FDI) Eroding Corporate Income Taxes?

Reint Gropp and Kristina Kostial

No 2000/173, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the link between FDI, corporate taxation, and corporate tax revenues. We find strong evidence that FDI in (out) flows are affected by tax regimes in the host (home) countries and FDI flows in turn affect the corporate tax base. Simulations of European Union (EU) harmonization (isolating the revenue effect of FDI on the tax base from direct effects through the rate harmonization) suggest that high (low) tax countries would gain (lose) revenue from harmonization; these effects may be substantial. Our results also suggest that EU tax harmonization would significantly affect the net FDI position of some countries.

Keywords: WP; FDI inflow; FDI flow; FDI outflow; net FDI position; outflow component; revenue elasticity; Corporate taxation; foreign direct investment; revenues; simulations; OECD countries; equations following; Corporate income tax; Corporate taxes; Tax harmonization; Global (search for similar items in EconPapers)
Pages: 39
Date: 2000-10-01
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Citations: View citations in EconPapers (70)

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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2000/173

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