Corporate taxes and the location of FDI in Europe using firm-level data
European countries are facing an ever-increasing competition for Foreign Direct Investment (FDI). This paper studies how corporate taxes affect the location of FDI in Europe. Firm-level data is used to estimate a conditional logit model. We start by analysing the impact of the level and volatility of three different tax rates on FDI. Next, we analyse how economic and monetary integration influences the effect of taxes on FDI. The interaction between taxes and the upward and downward cycles of FDI is also analysed. Finally, we focus on how the impact of taxes depends on project characteristics. We conclude that taxes play a significant role in attracting FDI, but the issues analysed imply that there are some nuances in this relation, many of them relevant for policy makers.
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|Date of revision:||Dec 2011|
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