Corporate Taxation and Bilateral FDI with Threshold Barriers
AbstractThe paper brings out the special mechanism through which taxes influence bilateral FDI, when investment decisions are two-fold in the presence of fixed setup flows costs. For each pair of source-host countries, there is a set of factors determining whether aggregate FDI flows will occur at all, and a different set of factors determimnig the volume of FDI flows (provided that they occur). We demonstrate that the notion that the mere international tax differetials are a key factor behind the direction and magnitude of FDI flows is too simple. We argue that the source country tax rate works primarely on the selection process, whereas the host-country tax rate affect mainly the magnitude of the FDI, once they occur. We analyze international panel data with 24 OECD countries over the period 1981-1998 by the Heckman selection method to bring evidence in support of this argument.
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Date of creation: Mar 2005
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Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- F1 - International Economics - - Trade
This paper has been announced in the following NEP Reports:
- NEP-ACC-2005-03-20 (Accounting & Auditing)
- NEP-ALL-2005-03-20 (All new papers)
- NEP-PBE-2005-03-20 (Public Economics)
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