The Disappearing Tax Base: Is Foreign Direct Investment Eroding Corporate Income Taxes?

36 Pages Posted: 2 Dec 2002

See all articles by Reint Gropp

Reint Gropp

Halle Institute for Economic Research

Kristina Kostial

International Monetary Fund (IMF)

Date Written: September 2000

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.

Keywords: Corporate Taxation, Foreign Direct Investment, Revenues, Simulations, OECD Countries

JEL Classification: H25, H87, F21, F42, F47

Suggested Citation

Gropp, Reint and Kostial, Kristina, The Disappearing Tax Base: Is Foreign Direct Investment Eroding Corporate Income Taxes? (September 2000). Available at SSRN: https://ssrn.com/abstract=355624

Reint Gropp (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Kristina Kostial

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
746
Abstract Views
3,261
rank
39,890
PlumX Metrics