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Do double taxation treaties increase foreign direct investment to developing countries?

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  • Eric Neumayer

Abstract

Developing countries invest time and other scarce resources to negotiate and conclude double taxation treaties (DTTs) with developed countries. They also accept a loss of tax revenue as such treaties typically favour residence-based over source-based taxation and developing countries are typically net capital importers. The incurred costs will only pay off if developing countries can expect to receive more foreign direct investment (FDI) in return. This is the first study to provide evidence that developing countries that have signed a DTT with the US or a higher number of DTTs with important capital exporters actually do receive more FDI from the US and in total. However, DTTs are only effective in the group of middle-, not low-income developing countries.

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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 3054.

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Date of creation: Nov 2007
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Publication status: Published in Journal of Development Studies, November, 2007, 43(8), pp. 1501-1519. ISSN: 0022-0388
Handle: RePEc:ehl:lserod:3054

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Cited by:
  1. Mário MARQUES & Carlos PINHO, 2014. "Effects of Corporate Taxation and Bilateral Tax Treaties on European Multinationals’ Investment, 2005-2009. A Multi-Country Analysis," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 14(1), pages 33-44.
  2. Francis Weyzig, 2013. "Tax treaty shopping: structural determinants of Foreign Direct Investment routed through the Netherlands," International Tax and Public Finance, Springer, Springer, vol. 20(6), pages 910-937, December.
  3. Arjan Lejour, 2014. "The Foreign Investment Effects of Tax Treaties," CPB Discussion Paper 265, CPB Netherlands Bureau for Economic Policy Analysis.

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