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Does Corruption Relieve Foreign Investors of the Burden of Taxes and Capital Controls?

In: International Taxation and Multinational Activity

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  • Shang-Jin Wei

Abstract

In a sample of fourteen source countries making bilateral investments in forty five countries, the author finds that taxes, capital controls, and corruption, all have large, statistically significant negative effects on foreign investment. Moreover, there is no robust support in the data for the"efficient grease"hypothesis - that corruption helps attract foreign investment by reducing firms'tax burden and the irritant of capital controls.
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Suggested Citation

  • Shang-Jin Wei, 2000. "Does Corruption Relieve Foreign Investors of the Burden of Taxes and Capital Controls?," NBER Chapters, in: International Taxation and Multinational Activity, pages 73-88, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:10720
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    References listed on IDEAS

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    1. Shang-Jin Wei & Mr. Daniel Kaufmann, 2000. "Does 'Grease Money' Speed Up the Wheels of Commerce?," IMF Working Papers 2000/064, International Monetary Fund.
    2. Mihir A. Desai & James R. Hines, Jr., 1996. ""Basket" Cases: International Joint Ventures After the Tax Reform Act of 1986," NBER Working Papers 5755, National Bureau of Economic Research, Inc.
    3. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    4. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
    5. James R. Hines, Jr., 1995. "Forbidden Payment: Foreign Bribery and American Business After 1977," NBER Working Papers 5266, National Bureau of Economic Research, Inc.
    6. Daniel Kaufmann & Shang-Jin Wei, 1999. "Does "Grease Money" Speed Up the Wheels of Commerce?," NBER Working Papers 7093, National Bureau of Economic Research, Inc.
    7. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    8. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-781, August.
    9. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    10. Martin Feldstein & James R. Hines Jr. & R. Glenn Hubbard, 1995. "The Effects of Taxation on Multinational Corporations," NBER Books, National Bureau of Economic Research, Inc, number feld95-2.
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    Cited by:

    1. Slutzky, Pablo, 2021. "The hidden costs of being public: Evidence from multinational firms operating in an emerging market," Journal of Financial Economics, Elsevier, vol. 139(2), pages 606-626.
    2. Jelena Budak & Edo Rajh, 2011. "Corruption as an Obstacle for Doing Business in the Western Balkans: A Business Sector Perspective," Working Papers 1104, The Institute of Economics, Zagreb.
    3. Axel Dreher & Lars-H.R. Siemers, 2003. "The Intriguing Nexus Between Corruption and Capital Account Restrictions," Development and Comp Systems 0306004, University Library of Munich, Germany, revised 07 Jul 2005.
    4. Axel Dreher & Martin Gassebner, 2007. "Greasing the Wheels of Entrepreneurship? The Impact of Regulations and Corruption on Firm Entry," KOF Working papers 07-166, KOF Swiss Economic Institute, ETH Zurich.
    5. Antonio Lecuna & Roberto Chávez, 2018. "Entrepreneurship and Weak Institutions in Latin America," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 33(Fall 2018), pages 25-47.
    6. Bitzenis, Aristidis & Tsitouras, Antonis & Vlachos, Vasileios A., 2009. "Decisive FDI obstacles as an explanatory reason for limited FDI inflows in an EMU member state: The case of Greece," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(4), pages 691-704, August.
    7. Gupta, Sanjeev & de Mello, Luiz & Sharan, Raju, 2001. "Corruption and military spending," European Journal of Political Economy, Elsevier, vol. 17(4), pages 749-777, November.
    8. Antonio Lecuna, 2014. "Corruption and bureaucracy in entrepreneurship," Serie Working Papers 17, Universidad del Desarrollo, School of Business and Economics, revised Dec 2014.
    9. Klein, Michael & Aaron, Carl & Hadjimichael, Bita, 2001. "Foreign direct investment and poverty reduction," Policy Research Working Paper Series 2613, The World Bank.
    10. Kaufmann, Daniel & Montoriol-Garriga, Judit & Recanatini, Francesca, 2008. "How does bribery affect public service delivery ? micro-evidence from service users and public officials in Peru," Policy Research Working Paper Series 4492, The World Bank.
    11. Axel Dreher & Thomas Herzfeld, 2005. "The Economic Costs of Corruption: A Survey and New Evidence," Public Economics 0506001, University Library of Munich, Germany.
    12. Abderraouf Mtiraoui, 2020. "Corruption between economic institutional aspect and social aspect through governance [La corruption entre l’aspect institutionnel économique et l’aspect social à travers la gouvernance]," Working Papers hal-02535463, HAL.

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