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The effects of company taxation in EU accession countries on German FDI

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Author Info

  • Michael Overesch
  • Georg Wamser

Abstract

This article investigates how company taxation affects German foreign direct investment (FDI) in European Union (EU) accession countries. In 2004 and 2007, 10 former socialist eastern European countries joined the EU. Although the EU integration is associated with increasingly favourable investment conditions, accession countries also pursue active strategies to attract foreign firms. In particular, taxes on corporate income have been significantly reduced during the last decade. We analyse whether corporate tax policies of eastern European countries affect three aspects of multinational activity: the location decision, the investment decision and the capital structure choice. The results suggest that local taxes are negatively related to both location and investment decisions. The analysis of the capital structure confirms that higher local taxes imply higher debt-to-capital ratios. Copyright (c) 2010 The Authors. Journal compilation (c) 2010 The European Bank for Reconstruction and Development.

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Bibliographic Info

Article provided by The European Bank for Reconstruction and Development in its journal Economics of Transition.

Volume (Year): 18 (2010)
Issue (Month): 3 (07)
Pages: 429-457

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Handle: RePEc:bla:etrans:v:18:y:2010:i:3:p:429-457

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Cited by:
  1. Gaetan Nicodeme, 2009. "Corporate Income Tax and Economic Distortions," Taxation Papers 15, Directorate General Taxation and Customs Union, European Commission, revised Apr 2009.
  2. Bialowolski, Piotr & Weziak-Bialowolska, Dorota, 2013. "External factors affecting investment decisions of companies," Economics Discussion Papers 2013-44, Kiel Institute for the World Economy.
  3. Keller, Sara & Schanz, Deborah, 2013. "Tax attractiveness and the location of German-controlled subsidiaries," arqus Discussion Papers in Quantitative Tax Research 142, arqus - Arbeitskreis Quantitative Steuerlehre.
  4. Bialowolski, Piotr & Weziak-Bialowolska, Dorota, 2014. "External factors affecting investment decisions of companies," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 8(11), pages 1-21.
  5. Keller, Sara & Schanz, Deborah, 2013. "Measuring tax attractiveness across countries," arqus Discussion Papers in Quantitative Tax Research 143, arqus - Arbeitskreis Quantitative Steuerlehre.

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