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How do effective taxation and institutions affect FDI nowadays?

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  • Nicolae-Bogdan Ianc

    (University of Orléans
    West University of Timisoara)

Abstract

We explore the effects of effective taxation and institutional quality on sectoral FDI. Our analysis includes European countries, using data from 2002 to 2020. Employing a GMM approach, we show that an increase in effective taxation reduces sectoral FDI flow. Among the institutional variables, tertiary enrolment attracts FDI, while secondary attainment has varying effects depending on the sector. Our findings suggest that governments should lower taxes to encourage more FDI flows and strengthen tertiary and secondary enrolment.

Suggested Citation

  • Nicolae-Bogdan Ianc, 2025. "How do effective taxation and institutions affect FDI nowadays?," Economic Change and Restructuring, Springer, vol. 58(3), pages 1-21, June.
    • Handle: RePEc:kap:ecopln:v:58:y:2025:i:3:d:10.1007_s10644-025-09875-2
    DOI: 10.1007/s10644-025-09875-2
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    More about this item

    Keywords

    Sectoral FDI; Effective taxation; Institution quality; European countries;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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