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Foreign Direct Investment and Fiscal Policy - A Literature Survey

Author

Listed:
  • Luís Alberto Godinho Coelho

    (CEFAGE)

  • José Fernando Pereira Biléu Ventura

    (CEFAGE-UÉ and Management Department, Évora University)

Abstract

This paper conducts a literature survey on Foreign Direct Investment (FDI) and its relation to fiscal policy. Geographical and cultural proximity between originating and host countries, market size of the host countries, as well as other exogenous variables have been pointed out by a significant part of the literature as crucial factors in FDI decisions. Fiscal policy, as an endogenous factor, is an increasingly important tool on the countries competitiveness for attracting FDI, mainly in the Euro-zone. The papers analyzed identify some areas of fiscal policy: most papers focus analysis of fiscal policy only on the tax rate – that is, on the relationship between the income tax rate in force in the country and FDI; other papers analyze the relationship between fiscal harmonization and FDI; some papers study the relationship between the complexity of the fiscal system and FDI; while others attempt to relate other specific areas of fiscal policy – e.g. fiscal regime of thin capitalization – with FDI decisions; various other studies show the relationship between territories with non-existent (or extremely low) fiscal regimes and FDI. It is expected that this characteristics of fiscal policy, will be relevant in the decision-making process, where countries are competing with each other as potential locations for FDI.

Suggested Citation

  • Luís Alberto Godinho Coelho & José Fernando Pereira Biléu Ventura, 2014. "Foreign Direct Investment and Fiscal Policy - A Literature Survey," CEFAGE-UE Working Papers 2014_11, University of Evora, CEFAGE-UE (Portugal).
    • Handle: RePEc:cfe:wpcefa:2014_11
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    References listed on IDEAS

    as
    1. 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.
    2. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
    3. Carstensen, Kai & Toubal, Farid, 2004. "Foreign direct investment in Central and Eastern European countries: a dynamic panel analysis," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 3-22, March.
    4. Schreiber, Ulrich & Overesch, Michael & Büttner, Thiess & Wamser, Georg, 2006. "The Impact of Thin-Capitalization Rules on Multinationals? Financing and Investment Decisions," ZEW Discussion Papers 06-068, ZEW - Leibniz Centre for European Economic Research.
    5. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
    6. Michael J. Boskin, 1987. "Tax Policy and the International Location of Investment," NBER Chapters, in: Taxes and Capital Formation, pages 73-82, National Bureau of Economic Research, Inc.
    7. Estrin, Saul & Bevan, Alan, 2000. "The Determinants of Foreign Direct Investment in Transition Economies," CEPR Discussion Papers 2638, C.E.P.R. Discussion Papers.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Foreign Direct Investment; Fiscal Policy; Corporate Income Tax Rate; Tax Harmonization; Tax Complexity; Tax Havens.;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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