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The Effect of Foreign Direct Investment on Tax Revenue

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  • Abdramane Camara

    (University Clermont Auvergne, CNRS, IRD, CERDI)

Abstract

Internal resource mobilization remains a big challenge for developing countries. While many studies have attempted to highlight several strategies to increase tax revenues, the contribution of foreign direct investment (FDI) inflows in this process has received little attention. This paper provides an empirical answer to the crucial role of FDI inflows in tax revenue mobilization. Using a System GMM estimator for 90 developing countries from 1996 to 2017, our results strongly suggest that FDI inflows lead to a significant tax revenue increase. Nevertheless, this effect is not observed in resource-exporting countries where tax revenues seem statistically insensitive to FDI inflows.

Suggested Citation

  • Abdramane Camara, 2023. "The Effect of Foreign Direct Investment on Tax Revenue," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(1), pages 168-190, March.
    • Handle: RePEc:pal:compes:v:65:y:2023:i:1:d:10.1057_s41294-022-00195-2
    DOI: 10.1057/s41294-022-00195-2
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    More about this item

    Keywords

    Foreign direct investment; Tax revenue; System GMM; Resource exporting countries;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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