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Tax-Rate Differentials and Sector Specific Foreign Direct Investment: Empirical Evidence from the EU

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  • Sven Stöwhase

Abstract

This paper analyzes the tax responsiveness of bilateral foreign direct investment flows in the EU. Differentiating between investments in the three main economic sectors and using effective tax rates to measure tax incentives, we show that the tax sensitivity of foreign direct investment depends crucially on the sector the transaction takes place in. While investment in the primary sector is driven by other than tax incentives, investment in the secondary and the tertiary sector is deterred by high tax rates. The response in the tertiary sector is substantially higher than that in the secondary sector.

Suggested Citation

  • Sven Stöwhase, 2006. "Tax-Rate Differentials and Sector Specific Foreign Direct Investment: Empirical Evidence from the EU," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(4), pages 535-558, February.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200602)61:4_535:tdasfd_2.0.tx_2-k
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    References listed on IDEAS

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    1. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
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    Cited by:

    1. Stacie Beck & Alexis Chaves, 2011. "The Impacts of Various Taxes on Foreign Direct Investment," Working Papers 11-18, University of Delaware, Department of Economics.

    More about this item

    Keywords

    corporate income taxation; foreign direct investment;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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