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Corporate taxes and the location of FDI in Europe using firm-level data

Author

Listed:
  • Tomas Silva

    (Office for Strategy and Studies, Portuguese Ministry of Economy)

  • Sergio Lagoa

    (Department of Political Economy, ISCTE - University Institute of Lisbon)

Abstract

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.

Suggested Citation

  • Tomas Silva & Sergio Lagoa, 2011. "Corporate taxes and the location of FDI in Europe using firm-level data," GEE Papers 0044, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Dec 2011.
    • Handle: RePEc:mde:wpaper:0044
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    File URL: https://www.gee.gov.pt/RePEc/WorkingPapers/GEE_PAPERS_44.pdf
    File Function: First version, 2011
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    References listed on IDEAS

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    2. Rodriguez-Palenzuela, Diego & Dées, Stéphane & Andersson, Malin & Bijsterbosch, Martin & Forster, Katrin & Zorell, Nico & Audoly, Richard & Buelens, Christian & Compeyron, Guillaume & Ferrando, Annali, 2016. "Savings and investment behaviour in the euro area," Occasional Paper Series 167, European Central Bank.

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    More about this item

    Keywords

    FDI; Location; Taxes; Conditional Logit Model;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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