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Tax Competition and Foreign Direct Investment

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Author Info
Agnes Benassy-Quere
Lionel Fontagne
Amina Lahreche-Revil

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Abstract

Using a panel of bilateral FDI flows for 11 OECD countries over 1984-2000, we show that, although agglomeration-related factors are strong determinants of FDI, tax differentials also play a significant role in understanding foreign location decisions. We further investigate non-linearities in the impact of tax differentials, and explore the role of tax schemes. We show that the reaction of FDI inflows to tax differentials is non-linear: it depends on the magnitude of the tax gap, on the sign of this gap, and on the nature of bilateral tax schemes in operation (credit vs. exemption). Our results are consistent with the imperfect competition literature which underscores the possibility of tax differentials across countries in equilibrium.

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Paper provided by CEPII research center in its series Working Papers with number 2003-17.

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Date of creation: Dec 2003
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Handle: RePEc:cii:cepidt:2003-17

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Related research
Keywords: Tax competition; Foreign Direct Investment; corporate tax; OECD;

Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Combes, Pierre-Philippe & Lafourcade, Miren & Mayer, Thierry, 2003. "Can Business and Social Networks Explain the Border Effect Puzzle?," CEPR Discussion Papers 3750, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Hedi Bchir & Lionel Fontagne & Paolo Zanghieri, 2003. "The Impact of EU Enlargement on Member States: a CGE Approach," Working Papers 2003-10, CEPII research center. [Downloadable!]
  3. Mohamed Hedi Bchir & Mathilde Maurel, 2002. "Impacts economiques et sociaux de l'elargissement pour l'Union europeenne et la France," Working Papers 2002-03, CEPII research center. [Downloadable!]
  4. M. Beine & A. Bénassy-Quéré & E. Dauchy & R. MacDonald, 2002. "The Impact of Central Bank Intervention on Exchange-Rate Forecast Heterogeneity," THEMA Working Papers 2002-22, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
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  5. Isabelle Bensidoun & Guillaume Gaulier & Deniz Unal-Kesenci, 2001. "The Nature of Specialization Matters for Growth: an Empirical Investigation," Working Papers 2001-13, CEPII research center. [Downloadable!]
  6. Agnes Chevallier & Deniz Unal-Kesenci, 2001. "La productivite des industries mediterraneennes," Working Papers 2001-16, CEPII research center. [Downloadable!]
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Cited by:
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  1. Ruud de Mooij & Sjef Ederveen, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," Asia-Pacific Financial Markets, Springer, vol. 10(6), pages 673-693, November. [Downloadable!] (restricted)
    Other versions:
  2. Vincent Delbecque, 2007. "Impact de la fiscalité sur les IDE : Application à un panel d’entreprises françaises," EconomiX Working Papers 2007-1, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
  3. Ruud A. de Mooij & Sjef Ederveen, 2005. "Explaining the Variation in Empirical Estimates of Tax Elasticities of Foreign Direct Investment," Tinbergen Institute Discussion Papers 05-108/3, Tinbergen Institute. [Downloadable!]
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