1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Taxation, Business Environment and FDI Location in OECD Countries

This paper assesses the importance of taxation on foreign direct investment contributing to the literature in two ways. First, it relates bilateral FDI among OECD countries over the 1990s to a new set of estimates of corporate tax wedges that include many relevant aspects of FDI taxation. Second, it controls for a large set of additional policy and non-policy factors that may affect the attractiveness of a country for foreign investors. Furthermore, the empirical approach is novel in that it focuses on a semi-parametric estimation methodology that accounts for a number of unobserved effects possibly impinging on the choice of investment location by multinational enterprises. Consistent with previous findings, the estimation results suggest that corporate taxation has a non-negligible impact on FDI location choices. However, the results suggest that focusing only on taxation in home and host countries and omitting other policies (such as border policies and labour and product market settings) may lead to a serious overestimation of tax elasticities and their relevance for policy.

English

Keywords: corporate taxation, panel data, foreign direct investment, regulation
JEL: H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; C23: Mathematical and Quantitative Methods / Single Equation Models; Single Variables / Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models; H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies including sales and value-added (VAT); L50: Industrial Organization / Regulation and Industrial Policy / Regulation and Industrial Policy: General; F23: International Economics / International Factor Movements and International Business / Multinational Firms; International Business; F21: International Economics / International Factor Movements and International Business / International Investment; Long-term Capital Movements
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