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Taxation and Foreign Direct Investment: A Synthesis of Empirical Research

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  • de Mooij, Ruud A
  • Ederveen, Sjef

Abstract

This paper reviews the empirical literature on the impact of company taxes on the allocation of foreign direct investment. We compare the outcomes of 25 empirical studies by computing the tax rate elasticity under a uniform definition. The median value of the tax rate elasticity in the literature is around -3.3 (i.e. a 1 percent-point reduction in the host-country tax rate raises foreign direct investment in that country by 3.3 percent). There exists substantial variation across studies, however. By performing a meta-analysis, the paper aims to explain this variation by the differences in characteristics of the underlying studies. Systematic differences between studies are found with respect to the type of foreign capital data used, and the type of tax rates adopted. We find no systematic differences in the responsiveness of investors from tax credit countries and tax exemption countries. Copyright 2003 by Kluwer Academic Publishers

Suggested Citation

  • de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 673-693, November.
  • Handle: RePEc:kap:itaxpf:v:10:y:2003:i:6:p:673-93
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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