Foreign Direct Investment In The Enlarged EU: Do Taxes Matter And To What Extent?

Topics:
Foreign Direct Investment
Tags:
Currency & Foreign Exchange,
European Union,
Finance,
Financial Planning,
Foreign Direct Investment,
Foreign Direct Investment (FDI),
Investment,
Taxes
Source:
Deutsche Bundesbank

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Overview: Foreign direct investment is of increasing importance in the European Union. This paper estimates the effect of taxes on Foreign Direct Investment (FDI) flows and on three sub-components of these flows for the countries of the enlarged European Union. The model in the spirit of gravity equations robustly explains FDI flows between the 25 member states. Sample selection needs to be addressed in the estimation. Author show that the different subcomponents of FDI should and indeed do react differently to taxes. After controlling for unobserved country characteristics and common time effects, the top statutory corporate tax rate of both, source and host country, turn insignificant for total FDI and investment into equity.

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Format: PDF | Size: 373KB | Date: Apr 2006 | Pages: 60


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