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Kristina Kostial

1 September 2000
WORKING PAPER SERIES - No. 31
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Abstract
This paper analyzes the link between Foreign Direct Investment (FDI), corporate taxation, and corporate tax revenues. We find strong evidence that FDI in (out) flows are affected by tax regimes in the host (home) countries and FDI flows in turn affect the corporate tax base. Simulations of EU harmonization (isolating the revenue effect of FDI on the tax base from direct effects through the rate harmonization) suggest that high (low) tax countries would gain (lose) revenue from harmonization; these effects may be substantial. Our results also suggest that EU tax harmonization would significantly affect the net FDI position of some countries.
JEL Code
H25 : Public Economics→Taxation, Subsidies, and Revenue→Business Taxes and Subsidies
H87 : Public Economics→Miscellaneous Issues→International Fiscal Issues, International Public Goods
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
F47 : International Economics→Macroeconomic Aspects of International Trade and Finance→Forecasting and Simulation: Models and Applications