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Do Taxes Matter for Foreign Direct Investment?

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  • Shah, Anwar
  • Slemrod, Joel

Abstract

The tax sensitivity of foreign direct investment (FDI) has important policy implications. If FDI is not responsive to taxation, then it may be an appropriate target for taxation by the host country. This question is examined for Mexico by estimating the response of FDI from retained earnings and transfers from abroad to the tax regimes in Mexico and the home country, the credit status of multinationals, country risk factors, and regulatory and trade regimes in Mexico. FDI in Mexico is found to be sensitive to the tax regimes in Mexico and the United States, the credit status of multinationals, country credit ratings, and the regulatory environment. Thus Mexico's current policies to dismantle regulations and employ a tax system competitive with the United States are expected to have salutary effects on FDI in Mexico. Copyright 1991 by Oxford University Press.

Suggested Citation

  • Shah, Anwar & Slemrod, Joel, 1991. "Do Taxes Matter for Foreign Direct Investment?," The World Bank Economic Review, World Bank, vol. 5(3), pages 473-491, September.
    • Handle: RePEc:oup:wbecrv:v:5:y:1991:i:3:p:473-91
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    Cited by:

    1. Moshirian, Fariborz & Bishop, Robert, 1997. "International business: determinants of interbank activities," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 7(4), pages 329-349, December.
    2. Peter Egger & Simon Loretz & Michael Pfaffermayr & Hannes Winner, 2006. "Corporate Taxation and Multinational Activity," CESifo Working Paper Series 1773, CESifo.
    3. Dr. Brijesh Kumar & Anuj Singhal, 2006. "Role of FDI in Indian Economy (A Concern of the FDI and Indian Regime)," Journal of Commerce and Trade, Society for Advanced Management Studies, vol. 1(2), pages 46-48, October.
    4. Lotfali Agheli Kohnehshahri & Sara Emamgholi Poursefiddashti, 2006. "A Review of ECO Performance with Emphasis on FDI," Papers of the Annual IUE-SUNY Cortland Conference in Economics, in: Oguz Esen & Ayla Ogus (ed.), Proceedings of the Conference on Human and Economic Resources, pages 264-282, Izmir University of Economics.
    5. Gollin, Douglas, 1995. "Do Taxes on Large Firms Impede Growth? Evidence from Ghana," Bulletins 7488, University of Minnesota, Economic Development Center.
    6. Nzaro Robert & Njanike Kosmas, 2011. "An evaluation of financial strategies used by companies in the retail sector during recession period (2000-2010)," E3 Journal of Business Management and Economics., E3 Journals, vol. 2(1), pages 022-027.
    7. Moshirian, Fariborz, 1999. "Sources of growth in international insurance services," Journal of Multinational Financial Management, Elsevier, vol. 9(2), pages 177-194, March.
    8. Mendoza, Ronald U. & Canare, Tristan A. & Ang, Alvin, 2015. "Doing Business: A Review of Literature and Its Role in APEC 2015," Research Paper Series DP 2015-37, Philippine Institute for Development Studies.
    9. Inganga Eno L & Chidozie Emenuga, 1996. "Taxation of financial assets and capital market development in Nigeria," Working Papers 47, African Economic Research Consortium, Research Department.
    10. Peter Egger & Simon Loretz & Michael Pfaffermayr & Hannes Winner, 2009. "Bilateral effective tax rates and foreign direct investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 822-849, December.
    11. Moshirian, Fariborz, 2001. "International investment in financial services," Journal of Banking & Finance, Elsevier, vol. 25(2), pages 317-337, February.
    12. Mr. Nigel A Chalk, 2001. "Tax Incentives in The Philippines: A Regional Perspective," IMF Working Papers 2001/181, International Monetary Fund.
    13. Moshirian, Fariborz, 1997. "Foreign direct investment in insurance services in the United States," Journal of Multinational Financial Management, Elsevier, vol. 7(2), pages 159-173, June.
    14. Mark Rider, 2004. "Corporate Income Tax and Tax Incentives," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0428, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    15. Ramirez Verdugo, Arturo, 2005. "Tax Incentives and Business Investment: New Evidence from Mexico," MPRA Paper 2272, University Library of Munich, Germany, revised 04 Oct 2006.
    16. Ang, Alvin & Mendoza, Ronald U. & Canare, Tristan A., 2015. "Doing Business: A Review of Literature and Its Role in APEC 2015," Discussion Papers DP 2015-37, Philippine Institute for Development Studies.
    17. Mr. Sebastian Sosa, 2006. "Tax Incentives and Investment in the Eastern Caribbean," IMF Working Papers 2006/023, International Monetary Fund.

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