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Bilateral Effective Tax Rates and Foreign Direct Investment

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  • Peter Egger

    ()
    (Ifo Institute and University of Munich)

  • Simon Loretz

    ()
    (Oxford University Centre for Business Taxation)

  • Michael Pfaffermayr

    ()
    (Department of Economics and Statistics, University of Innsbruck)

  • Hannes Winner

    ()
    (Department of Economics and Statistics, University of Innsbruck)

Abstract

This paper computes effective (marginal and average) tax rates that account for bilateral aspects of taxation and, therefore, vary across country-pairs and years. These tax rates serve to estimate the impact of corporate taxation on outbound stocks of bilateral foreign direct investment (FDI) among OECD countries between 1991 and 2002. The findings indicate that outbound FDI is positively related to the parent and host country tax burden and negatively associated with bilateral effective tax rates. Relying only on unilateral (country and time variant) rather than on both unilateral and bilateral (country-pair and time variant) effective tax rates leads to biased estimates of the impact of corporate taxation on FDI.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0802.

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Date of creation: 2008
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Handle: RePEc:btx:wpaper:0802

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Keywords: Corporate taxation; Foreign direct investment; Panel econometrics;

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