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Foreign Direct Investment, Tax Competition and Social Expenditure

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  • Holger Görg,
  • Hassan Molana,
  • Catia Montagna

Abstract

The aim of this paper is to make a first step towards studying the role of social expenditure and its interaction with corporate taxation in determining the destination of foreign direct investment (FDI) flows. Using panel data for 18 OECD countries and measuring the extent of social welfare policies by the (public social expenditure)/GDP ratio, we find strong support for the conjecture that redistributive social welfare state policies are valued by multinationals as, for instance, they may signal a government's commitment to social stability.

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Bibliographic Info

Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 07/03.

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Handle: RePEc:not:notgep:07/03

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Keywords: Foreign Direct Investment; Tax Competition; Social Policy;

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References

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  1. Holger Görg & Hassan Molana & Catia Montagna, 2007. "Foreign Direct Investment, Tax Competition and Social Expenditure," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 198, Economic Studies, University of Dundee.
  2. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "Chains of Ownership, Regional Tax Competition, and Foreign Direct Investment," NBER Working Papers 9224, National Bureau of Economic Research, Inc.
  3. Baldwin, Richard & Krugman, Paul, 2000. "Agglomeration, Integration and Tax Harmonization," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2630, C.E.P.R. Discussion Papers.
  4. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
  5. Reint Gropp & Kristina Kostial, 2000. "The Disappearing Tax Base," IMF Working Papers, International Monetary Fund 00/173, International Monetary Fund.
  6. Andersson, Fredrik & Forslid, Rikard, 1999. "Tax Competition and Economic Geography," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2220, C.E.P.R. Discussion Papers.
  7. Molana, Hassan & Montagna, Catia, 2006. "Aggregate scale economies, market integration, and optimal welfare state policy," Journal of International Economics, Elsevier, Elsevier, vol. 69(2), pages 321-340, July.
  8. Dreher, Axel, 2006. "The influence of globalization on taxes and social policy: An empirical analysis for OECD countries," European Journal of Political Economy, Elsevier, Elsevier, vol. 22(1), pages 179-201, March.
  9. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  10. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  11. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, Elsevier, vol. 52(2), pages 331-357, December.
  12. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, National Tax Association, vol. 52(n. 2), pages 305-22, June.
  13. James R. Hines Jr., 1993. "Altered States: Taxes and the Location of Foreign Direct Investment in America," NBER Working Papers 4397, National Bureau of Economic Research, Inc.
  14. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
  15. Roger H. Gordon & James R. Hines Jr., 2002. "International Taxation," NBER Working Papers 8854, National Bureau of Economic Research, Inc.
  16. Gropp, Reint & Kostial, Kristina, 2000. "The disappearing tax base: is foreign direct investment eroding corporate income taxes?," Working Paper Series, European Central Bank 0031, European Central Bank.
  17. Mutti, John & Grubert, Harry, 2004. "Empirical asymmetries in foreign direct investment and taxation," Journal of International Economics, Elsevier, Elsevier, vol. 62(2), pages 337-358, March.
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Citations

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Cited by:
  1. Markus Leibrecht & Michael Klien & Oezlem Onaran, 2011. "Globalization, welfare regimes and social protection expenditures in Western and Eastern European countries," Public Choice, Springer, Springer, vol. 148(3), pages 569-594, September.
  2. Estelle P. Dauchy & Christopher Balding, 2013. "Asymmetric Trade Estimator in Modified Gravity: Corporate Tax Rates and Trade in OECD Countries," Working Papers, Center for Economic and Financial Research (CEFIR) w0200, Center for Economic and Financial Research (CEFIR).
  3. Hao, Qian & Lahiri, Sajal, 2009. "Competition for foreign direct investment: The role of technology and market structure," International Review of Economics & Finance, Elsevier, Elsevier, vol. 18(4), pages 680-690, October.
  4. World Bank, 2013. "Trends and Determinants of Foreign Direct Investment in South Asia," World Bank Other Operational Studies 16522, The World Bank.
  5. Chen, Yu-Fu & Görg, Holger & Görlich, Dennis & Molana, Hassan & Montagna, Catia & Temouri, Yama, 2014. "Globalisation and the future of the welfare state," Kiel Policy Brief, Kiel Institute for the World Economy (IfW) 76, Kiel Institute for the World Economy (IfW).
  6. Sanjo, Yasuo, 2012. "Country risk, country size, and tax competition for foreign direct investment," International Review of Economics & Finance, Elsevier, Elsevier, vol. 21(1), pages 292-301.
  7. Godar, Sarah & Paetz, Christoph & Truger, Achim, 2014. "Progressive tax reform in OECD countries : perspectives and obstacles," ILO Working Papers, International Labour Organization 485510, International Labour Organization.
  8. Görg, Holger & Molana, Hassan & Montagna, Catia, 2009. "Foreign direct investment, tax competition and social expenditure," International Review of Economics & Finance, Elsevier, Elsevier, vol. 18(1), pages 31-37, January.
  9. Mayer, Wolfgang & Mourmouras, Alexandros, 2010. "IMF surveillance as a signal to attract foreign investment," International Review of Economics & Finance, Elsevier, Elsevier, vol. 19(4), pages 562-574, October.

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