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The effect of double taxation treaties and territorial tax systems on foreign direct investment: Evidence for Spain

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  • Castillo-Murciego, Ángela
  • López-Laborda, Julio

Abstract

The paper evaluates the effect of Double Taxation Treaties (DTTs) on Spain's inward and outward Foreign Direct Investment (FDI) for the period 1993-2013. Estimates produce positive and statistically significant coefficients. However, there are some differences between the inbound and outbound samples, the type of DTT and the group of developed and developing FDI partner countries. Moreover, interpretation of results differs depending on the fixed or random effects estimation technique used. The paper also analyses the effect on FDI of the rules agreed in DTTs and applied by the investors' residence country in order to correct international double taxation. The authors conclude that the tax saving derived from the application by Spain of the territorial system is positively related to investment from this country to abroad. However, the tax saving provided by the application by the partner countries of the territorial system does not have a significant effect on the investment of these countries into Spain.

Suggested Citation

  • Castillo-Murciego, Ángela & López-Laborda, Julio, 2019. "The effect of double taxation treaties and territorial tax systems on foreign direct investment: Evidence for Spain," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-33.
    • Handle: RePEc:zbw:ifweej:201922
    DOI: 10.5018/economics-ejournal.ja.2019-22
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    Cited by:

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    More about this item

    Keywords

    foreign direct investment; double taxation treaty; territorial tax system; Spain;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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