The browser you are using is not supported by this website. All versions of Internet Explorer are no longer supported, either by us or Microsoft (read more here: https://www.microsoft.com/en-us/microsoft-365/windows/end-of-ie-support).

Please use a modern browser to fully experience our website, such as the newest versions of Edge, Chrome, Firefox or Safari etc.

FDI, taxes and agglomeration economies in the EU15

På svenska

Author

Summary, in English

This paper provides an empirical analysis of the impact of tax differentials and agglomeration economies on foreign direct investment (FDI). The paper departs from most previous work on FDI and tax competition in a number of ways. First, it incorporates several measures of agglomeration in order to investigate whether agglomeration economies mitigate the downward spiral in tax rates. As the strength of agglomeration economies may vary with the degree of integration, we use a panel of bilateral FDI flows for a highly integrated region including countries with similar economic structure–the EU15–from 1986 to 2004. Second, the empirical analysis explicitly deals with the problem of selection bias by using the Heckman sample selection approach. Also, by focusing on the EU15, we are able to provide additional information on the determinants of FDI between similar, higher-income countries. The empirical analysis provides some evidence of corporate marginal effective tax rates having an impact on FDI. This result, however, is sensitive to the inclusion of agglomeration economies. In particular, we find both Marshall types of technological externalities and overall concentration of economic activity to have an influence on FDI flows and, moreover, mitigating the negative impact of taxes.

Publishing year

2013

Language

English

Pages

2653-2664

Publication/Series

Applied Economics

Volume

45

Issue

18

Document type

Journal article

Publisher

Routledge

Topic

  • Business Administration

Keywords

  • FDI
  • corporate tax rates
  • agglomeration economies
  • Heckman selection model

Status

Published

ISBN/ISSN/Other

  • ISSN: 1466-4283