IDEAS home Printed from https://ideas.repec.org/p/cpb/discus/3.rdf.html
   My bibliography  Save this paper

Taxation and foreign direct investment; a synthesis of empirical research

Author

Listed:
  • Ruud de Mooij

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • S. Ederveen

Abstract

This paper reviews the empirical literature on the impact of company taxes on the allocation of foreign direct investment. We make the outcomes of 25 empirical studies comparable by computing the tax rate elasticity under a uniform definition. Read also the accompanying press release.The mean value of the tax rate elasticity in the literature is around 3.3, i.e. a 1%-point reduction in the host-country tax rate raises foreign direct investment in that country by 3.3%. 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.

Suggested Citation

  • Ruud de Mooij & S. Ederveen, 2001. "Taxation and foreign direct investment; a synthesis of empirical research," CPB Discussion Paper 3.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:3.rdf
    as

    Download full text from publisher

    File URL: https://www.cpb.nl/sites/default/files/publicaties/download/taxation-and-foreign-direct-investment-synthesis-empirical-research.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bartik, Timothy J, 1985. "Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 14-22, January.
    2. Joeri Gorter & Ruud de Mooij, 2001. "Capital income taxation in Europe; trends and trade-offs," CPB Special Publication 30, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Auerbach, Alan J & Hines, James R, Jr, 1988. "Investment Tax Incentives and Frequent Tax Reforms," American Economic Review, American Economic Association, vol. 78(2), pages 211-216, May.
    4. Young, Kan H., 1988. "The Effects of Taxes and Rates of Return on Foreign Direct Investment in the United States," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(1), pages 109-121, March.
    5. 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.
    6. 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.
    7. Florax, Raymond J.G.M., 2001. "Methodological pitfalls in meta-analysis: publication bias," Serie Research Memoranda 0028, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    8. Hines, James R, Jr, 1996. "Altered States: Taxes and the Location of Foreign Direct Investment in America," American Economic Review, American Economic Association, vol. 86(5), pages 1076-1094, December.
    9. Hines, James R. Jr., 1999. "Lessons From Behavioral Responses to International Taxation," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 305-322, June.
    10. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-293, May.
    11. Papke, Leslie E., 1991. "Interstate business tax differentials and new firm location : Evidence from panel data," Journal of Public Economics, Elsevier, vol. 45(1), pages 47-68, June.
    12. Rosanne Altshuler & Harry Grubert & T. Scott Newlon, 2000. "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?," NBER Chapters, in: International Taxation and Multinational Activity, pages 9-38, National Bureau of Economic Research, Inc.
    13. Joel B. Slemrod, 1990. "Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison," NBER Chapters, in: Taxation in the Global Economy, pages 79-122, National Bureau of Economic Research, Inc.
    14. Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(1), pages 85-106, February.
    15. Joeri Gorter & A. Parikh, 2000. "How mobile is capital within the European Union?," CPB Research Memorandum 172.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    16. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 201-222, National Bureau of Economic Research, Inc.
    17. Alan J. Auerbach & Kevin Hassett & Joel Slemrod, 1993. "Taxation and Foreign Direct Investment in the United States: A Reconsideration of the Evidence," NBER Chapters, in: Studies in International Taxation, pages 119-148, National Bureau of Economic Research, Inc.
    18. Young, Kan H., 1988. "The Effects of Taxes and Rates of Return on Foreign Direct Investment in the United States," National Tax Journal, National Tax Association, vol. 41(1), pages 109-21, March.
    19. Murthy, N.R. Vasudeva, 1989. "The Effects of Taxes and Rates of Return on Foreign Direct Investment in the United States: Some Econometric Comments," National Tax Journal, National Tax Association, vol. 42(2), pages 205-07, June.
    20. Scholes, Myron S & Wolfson, Mark A, 1990. "The Effects of Changes in Tax Laws on Corporate Reorganization Activity," The Journal of Business, University of Chicago Press, vol. 63(1), pages 141-164, January.
    21. Murthy, N.R. Vasudeva, 1989. "The Effects of Taxes and Rates of Return on Foreign Direct Investment in the United States: Some Econometric Comments," National Tax Journal, National Tax Association;National Tax Journal, vol. 42(2), pages 205-207, June.
    22. Devereux, Michael P. & Pearson, Mark, 1995. "European tax harmonisation and production efficiency," European Economic Review, Elsevier, vol. 39(9), pages 1657-1681, December.
    23. Michael P. Devereux & Rachel Griffith, 1998. "The Taxation of Discrete Investment Choices," Keele Department of Economics Discussion Papers (1995-2001) 98/08, Department of Economics, Keele University.
    24. Frank Windmeijer & Eric de Laat & Rudy Douven & Esther Mot, 2006. "Pharmaceutical promotion and GP prescription behaviour," Health Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 5-18, January.
    25. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June.
    26. Swenson, Deborah L., 1994. "The impact of U.S. tax reform on foreign direct investment in the United States," Journal of Public Economics, Elsevier, vol. 54(2), pages 243-266, June.
    27. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 149-182.
    28. Steven Cassou, 1997. "The link between tax rates and foreign direct investment," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1295-1301.
    29. Joeri Gorter & Ruud de Mooij, 2001. "Capital income taxation in Europe; trends and trade-offs," CPB Special Publication 30.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    30. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
    31. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
    32. Agnès Bénassy-Quéré & Amina Lahrèche-Revil & Lionel Fontagné, 2003. "Tax Competition and Foreign Direct Investment," Working Papers 2003-17, CEPII research center.
    33. Joosung Jun, 1994. "How taxation affects foreign direct investment (country - specific evidence)," Policy Research Working Paper Series 1307, The World Bank.
    34. T. D. Stanley, 2001. "Wheat from Chaff: Meta-analysis as Quantitative Literature Review," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 131-150, Summer.
    35. Slemrod, J., 1989. "Tax Effects Of Foreign Direct Investment In The U.S.: Evidence From A Cross-Country Comparison," Working Papers 254, Research Seminar in International Economics, University of Michigan.
    36. Deborah L. Swenson, 2000. "Transaction Type and the Effect of Taxes on the Distribution of Foreign Direct Investment in the United States," NBER Chapters, in: International Taxation and Multinational Activity, pages 89-112, National Bureau of Economic Research, Inc.
    37. Joeri Gorter & A. Parikh, 2000. "How mobile is capital within the European Union?," CPB Research Memorandum 172, CPB Netherlands Bureau for Economic Policy Analysis.
    Full references (including those not matched with items on IDEAS)

    More about this item

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpb:discus:3.rdf. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/cpbgvnl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.