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The disappearing tax base: is foreign direct investment eroding corporate income taxes?

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Author Info
Reint Gropp () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Kristina Kostial () (International Monetary Fund, 700 19th St. NW, Washington, DC 20431, United States.)

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Abstract

This paper analyzes the link between Foreign Direct Investment (FDI), corporate taxation, and corporate tex 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 EU harmonization (isolating the revenue effects 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. JEL Classification: H25; H87; F21; F42; F47.

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Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 31.

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Length: 34 pages
Date of creation: Sep 2000
Date of revision:
Handle: RePEc:ecb:ecbwps:20000031

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Related research
Keywords: Corporate taxation; foreign direct investment; revenues; simulations; OECD countries.;

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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. Orphanides, Athanasios & Wieland, Volker, 2000. "Inflation zone targeting," European Economic Review, Elsevier, vol. 44(7), pages 1351-1387, June. [Downloadable!] (restricted)
    Other versions:
  2. Ignazio Angeloni & Luca Dedola, 1999. "From the ERM to the euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 4, European Central Bank. [Downloadable!]
    Other versions:
  3. Carlo Monticelli & Oreste Tristani, 1999. "What does the single monetary policy do? A SVAR benchmark for the European Central Bank," Working Paper Series 2, European Central Bank. [Downloadable!]
  4. Francesco P. Mongelli & Oliver De Bandt, 2000. "Convergence of fiscal policies in the Euro area," Working Paper Series 20, European Central Bank. [Downloadable!]
  5. Olivier de Bandt & E Philip Davis, 1999. "A cross-country comparison of market structures in European banking," Working Paper Series 7, European Central Bank. [Downloadable!]
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