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The role of tax system complexity on foreign direct investment

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  • Alejandro Esteller-Moré
  • Leonzio Rizzo
  • Riccardo Secomandi

Abstract

We present new cross-country empirical evidence that tax system complexity affects the location of international investment. The evidence comes from a database of foreign direct investment (FDI) bilateral flows for all OECD countries over the 2013–2016 period, and from the Doing Business survey, which collects several measures of tax system complexity and effective tax rates. By means of a gravity model, we consider the impact of destination and parent country characteristics on firm investment decisions. An increase in the difference between tax complexity in the home country and the destination country is related with an increase in FDI outflows from home to destination. We do not find any significant impact of tax rate differentials on FDI outflows.

Suggested Citation

  • Alejandro Esteller-Moré & Leonzio Rizzo & Riccardo Secomandi, 2021. "The role of tax system complexity on foreign direct investment," Applied Economics, Taylor & Francis Journals, vol. 53(45), pages 5208-5220, September.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:45:p:5208-5220
    DOI: 10.1080/00036846.2021.1922587
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    Cited by:

    1. Giese, Henning & Koch, Reinald & Sureth, Caren, 2024. "Where to locate tax employees? The role of tax complexity and tax risk implications," arqus Discussion Papers in Quantitative Tax Research 285, arqus - Arbeitskreis Quantitative Steuerlehre.

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