How does FDI affect corporate tax revenue of the host country?
AbstractThis paper investigates the effect of foreign direct investment (FDI) on the welfare of the host country through the process of corporate tax rate determination. Based on a theoretical model that allows for the entry of heterogenous multinational firms, we show that the impact of FDI on government revenue will depend on the competition effect and the technological spillovers. We argue that the competition effect reduces production of domestic firms and thereby lowers the level of corporate tax revenue while the technological spillovers can have positive or negative welfare effects depending on the absorptive capacity of local firms. The degree to which FDI contribute to government revenue in the host country depends also on the demand creation effect and technological transfer cost.
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Bibliographic InfoPaper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 13-03.
Length: 32 pages
Date of creation: 2013
Date of revision:
FDI; corporate tax revenue;
Find related papers by JEL classification:
- F15 - International Economics - - Trade - - - Economic Integration
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-13 (All new papers)
- NEP-CSE-2013-04-13 (Economics of Strategic Management)
- NEP-PBE-2013-04-13 (Public Economics)
- NEP-PUB-2013-04-13 (Public Finance)
- NEP-SBM-2013-04-13 (Small Business Management)
- NEP-SEA-2013-04-13 (South East Asia)
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