BibTex RIS Cite

The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries

Year 2016, Volume: 16 Issue: 4, 599 - 610, 01.09.2016

Abstract

This paper examines the impact of corporate income tax rate on foreign direct investment level (FDI) in the OECD countries. We attempt to find the impact of reduced corporate tax rate on foreign direct investment. We find that FDI level increases significantly following tax rate reductions at univariate level. We use fixed effect panel estimation and GMM method of estimation to test the relation between tax rate and FDI level. We report a negative relation between tax rate and FDI level. Our findings show that the countries which reduce their tax rates, attract higher level of FDI following this reduction

References

  • Agostini C. (2007) “The Impact of State Corporate Taxes on FDI Location” Public Finance Review, 35 (3): 335-360.
  • Beltratti, A. and Stulz, R.M. (2009) “Why did some banks perform better during the credit Crisis? A cross-country study of the impact of governance and regulation” Fisher College of Business Working Paper.
  • Bengoa, M. and Sanchez-Robles, B. (2003) “Foreign direct investment, economic freedom and growth: New evidence from Latin America” Eur. J. Polit. Econ, 19: 529–545.
  • Billington, N. (1999) “The Location of Foreign Direct Investment: An Empirical Analysis” Applied Economics, 31: 65–76.
  • Botric, V. and Skuflic, L. (2006) “Main Determinants of Foreign Direct Investment in the Southeast European Countries” Transition Studies Review, 13 (2): 359-377
  • Cak, M. and Karakas, M. (2009) “Doğrudan Yabancı Sermaye Yatırımlarını Belirleyen Unsurlar ve Etkileri” Marmara Universitesi I.I.B.F Dergisi, 26(1): 43-54.
  • Cassou, S. P. (1997) “The Link Between Tax Rates and Foreign Direct Investment” Applied Economics, 29: 1295-1301.
  • Charkrabarti, A. (2001) “The Determinants of Foreign Direct Investment: Sensitivity Analyses of CrossCountry Regressions”, Kyklos, 54(1): 89-114.
  • Clausing, K. A. (2007) “Corporate Tax Revenues in OECD Countries”, International Tax and Public Finance, 14 (2): 115-133.
  • Culem, C. G. (1988) “The Locational Determinants of Direct Investments Among Industrialized Countries” European Economic Review, 32: 885–904.
  • Cummins, J.G. and Hubbard, R.G. (1995) “The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data” The Effects of Taxation on Multinational Corporations (ed. M. Feldstein, J.R. Hines and R.G. Hubbard), National Bureau of Economic Research: 123- 152.
  • Demirhan, E. and Masca, M. (2008) “Determinants of Foreign Direct Investment Flows to Developing Countries: A Cross-sectional Analysis” Prague Economic Papers, University of Economics, Prague.
  • Devereux, M.P. and Freeman, H. (1995) “The Impact of Tax on Foreign Direct Investment: Empirical Evidence and the Implications for Integration Schemes” International Tax and Public Finance, 2: 85- 106.
  • Devereux, M.P. and Griffith, R. (2002) “The Impact of Corporate Taxation on the Location of Capital: A Review” Swedish Economic Policy Review, 9: 79- 102.
  • Devereux, M.P. and Maffini, G. (2006) “The Impact of Taxation on the Location of Capital, Firms and Profit: A Survey of Empirical Evidence” April, 1- 52, http:// www.ifs.org.uk/ conferences/etpf_devereux.pdf (16.10.2014).
  • Diamond J., Zodrow G. and Carroll, R. (2013) “Macroeconomic Effects of Lower Corporate Income Tax Rates Recently Enacted Abroad” Ernst & Young, March. The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries 609
  • Dunning, J. H. (1988) “The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions” Journal of International Business Studies, 19 (1): 1-31.
  • Edwards, S. (1990) “Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries” National Bureau of Economic Research (Cambridge, M. A.), Working Paper No. 3497.
  • Egger, P. and Raff, H. (2011) “Tax Rate and Tax Base Competition for Foreign Direct Investment” Kiel Working Papers, No: 1734, September.
  • Gordon, Roger H., and James R. Hines Jr. (2002) “International Taxation.” In Handbook of Public Economics, Vol. IV, eds. Alan Auerbach and Martin Feldstein, 1935-1995. Amsterdam: North-Holland.
  • Gropp, R. and Kostial, K. (2000) “The Disappearing Tax Base: Is Foreign Direct Investment (FDI) Eroding Corporate Income Taxes?” IMF Working Paper, October.
  • Helpman, E., Melitz, M. J. and Yeaple, S. A. (2004) “Export versus FDI with heterogeneous firms” American Economic Review, 94(1): 300–16.
  • Jun, J. (1994) “How Taxation Affects Foreign Direct Investment (Country-specific Evidence)” Policy Research Working Paper, The World Bank, No: 1307, June.
  • Kaufmann, D., Kraay, A. and Mastruzzi, M. (2007) “Governance matters VI: aggregate and individual governance indicators 1996-2006” World Bank Policy Research Working Paper, No 4280.
  • Kemsley, D. (1998) “The Effect of Taxes on Production Location” Journal of Accounting Research. 36: 321–341.
  • Kristjánsdóttir, H. (2005) “Determinants of Foreign Direct Investment in Iceland” Centre for Applied Microeconometrics. Department of Economics, University of Copenhagen.
  • Mooij R.A. and Ederveen, S. (2005) “How Does Foreign Direct Investment Respond to Taxes? A metaAnalysis” Conference on Foreign Direct Investment and Taxation, 3 October 2005: 1-32.
  • Morrissey, O. and Y. Rai (1995) “The GATT Agreement on Trade Related Investment Measures: Implications for Developing Countries and their Relationship with Transnational Corporations” Journal of Development Studies, 31(5): 702-724
  • Morisset, J. and Pirnia, N. (1999) “How Tax Policy and Incentives Affect Foreign Direct Investment: A Review” World Bank Policy Research Working Paper, No. 2509, November.
  • Mottaleb, K. A. and Kalirajan, K. (2010) “Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis” ASARC Working Paper 2010/13, Australian National University, Australia South Asia Research Centre
  • Nigh, D. (1985) “The Effect of Political Events on United States Direct Foreign Investment: A Pooled Time-series Cross-sectional Analysis” Journal of International Business Studies, 16: 1–17.
  • OECD (2007) “Tax Effects on Foreign Direct Investment (Recent Evidence and Policy Analysis)” OECD Tax Policy Studies, No: 17.
  • OECD (2014) Statistics http://stats.oecd.org/ Index.aspx?DatasetCode=FDI_FLOW_ PARTNER# (26.05.2015) Pistoresi, B. (2000) “Investimenti diretti esteri e fattori di localizzazione: L’America Latina e il Sud Est asiatico” Rivista di Politica Economica, 90: 27– 44.
  • Porcano, T. M. and C. E. Price (1996) “The Effects of Government Tax and Non-tax Incentives on Foreign Direct Investment” Multinational Business Review, 4: 9–20.
  • Sanjo, Y. (2012) “Country risk, country size, and tax competition for foreign direct investment” International Review of Economics and Finance, 21: 292-301.
  • Sato, T. (2012) “Empirical Analysis of Corporate Tax and Corporate Tax and Foreign Direct Investment” Public Policy Review, 8 (1): 1-20.
  • Schneider, F. and Frey, B. (1985) “Economic and Political Determinants of Foreign Direct Investment” World Development, 13(2): 161-175.
  • Scholes M.S., and Wolfson M.A., (1992) Taxes and business strategy: A planning approach Prentice-Hall, Englewood Cliffs, NJ.
  • Shahzad N. and Zahid M. (2011) “The Determinants of Foreign Direct Investment in Pakistan” Abasyn Journal of Social Sciences, 5(1): 111-121.
  • Swenson, D.L. (1994) “The Impact of U.S. tax reform on Foreign Direct Investment in the United States” Journal of Public Economics, 54: 243-266.
  • Sudsawasd, S. (2008) “Taxation, Business Regulation and Foreign Direct Investment In East Asia” in Soesastro. H. (ed), Deepening Economic IntegrationThe ASEAN Economic Community and Beyond-, ERIA Research Project Report 2007-1-2, Chiba: IDE-JETRO: 239-265.
  • Wisniewski, T.P. and Pathan, S.M. (2014) “Political Environment and Foreign Direct Investment: Nida ABDiOĞLU, Mine BiNiŞ, Mehmet ARSLAN 610 Evidence from OECD countries” European Journal of Political Economy, 36: 13-23.
  • Young, K.H. (1988) “The Effects of Taxes and Rates of Return on Foreign Direct Investment in the United States” National Tax Journal, 41 (1): 109-121.
  • Yulin, N. and M. R. Reed (1995) “Locational Determinants of U. S. Direct Foreign Investment in Food and Kindered Products” Agrobusiness, 11: 77– 86

Kurumlar Vergisi Oranının Yabancı Sermaye Yatırımları Üzerindeki Etkisi: OECD Ülkelerine Yönelik Bir Panel Çalışması

Year 2016, Volume: 16 Issue: 4, 599 - 610, 01.09.2016

Abstract

Bu çalışma OECD üyesi ülkelerdeki kurumlar vergisi oranının doğrudan yabancı sermaye yatırımları (DYS) üzerindeki etkisini incelemektedir. Çalışmada kurumlar vergisi oranının düşürülmesinin doğrudan yabancı yatırımlar üzerindeki etkisini ortaya koymayı amaçladık. Doğrudan yabancı sermaye yatırımlarının vergi oranlarının düşürülmesinden sonra anlamlı bir biçimde artış gösterdiğini bulduk. Vergi oranları ile DYS arasındaki ilişkiyi incelemek için sabit etki panel regresyonu ve GMM tahmin modelini kullandık. Vergi oranları ile DYS arasında negatif bir ilişki bulduk. Sonuçlarımız vergi oranlarını düşüren ülkelerin, bu düşüşü izleyen süreçte daha yüksek seviyede DYS çektiğini göstermektedir

References

  • Agostini C. (2007) “The Impact of State Corporate Taxes on FDI Location” Public Finance Review, 35 (3): 335-360.
  • Beltratti, A. and Stulz, R.M. (2009) “Why did some banks perform better during the credit Crisis? A cross-country study of the impact of governance and regulation” Fisher College of Business Working Paper.
  • Bengoa, M. and Sanchez-Robles, B. (2003) “Foreign direct investment, economic freedom and growth: New evidence from Latin America” Eur. J. Polit. Econ, 19: 529–545.
  • Billington, N. (1999) “The Location of Foreign Direct Investment: An Empirical Analysis” Applied Economics, 31: 65–76.
  • Botric, V. and Skuflic, L. (2006) “Main Determinants of Foreign Direct Investment in the Southeast European Countries” Transition Studies Review, 13 (2): 359-377
  • Cak, M. and Karakas, M. (2009) “Doğrudan Yabancı Sermaye Yatırımlarını Belirleyen Unsurlar ve Etkileri” Marmara Universitesi I.I.B.F Dergisi, 26(1): 43-54.
  • Cassou, S. P. (1997) “The Link Between Tax Rates and Foreign Direct Investment” Applied Economics, 29: 1295-1301.
  • Charkrabarti, A. (2001) “The Determinants of Foreign Direct Investment: Sensitivity Analyses of CrossCountry Regressions”, Kyklos, 54(1): 89-114.
  • Clausing, K. A. (2007) “Corporate Tax Revenues in OECD Countries”, International Tax and Public Finance, 14 (2): 115-133.
  • Culem, C. G. (1988) “The Locational Determinants of Direct Investments Among Industrialized Countries” European Economic Review, 32: 885–904.
  • Cummins, J.G. and Hubbard, R.G. (1995) “The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data” The Effects of Taxation on Multinational Corporations (ed. M. Feldstein, J.R. Hines and R.G. Hubbard), National Bureau of Economic Research: 123- 152.
  • Demirhan, E. and Masca, M. (2008) “Determinants of Foreign Direct Investment Flows to Developing Countries: A Cross-sectional Analysis” Prague Economic Papers, University of Economics, Prague.
  • Devereux, M.P. and Freeman, H. (1995) “The Impact of Tax on Foreign Direct Investment: Empirical Evidence and the Implications for Integration Schemes” International Tax and Public Finance, 2: 85- 106.
  • Devereux, M.P. and Griffith, R. (2002) “The Impact of Corporate Taxation on the Location of Capital: A Review” Swedish Economic Policy Review, 9: 79- 102.
  • Devereux, M.P. and Maffini, G. (2006) “The Impact of Taxation on the Location of Capital, Firms and Profit: A Survey of Empirical Evidence” April, 1- 52, http:// www.ifs.org.uk/ conferences/etpf_devereux.pdf (16.10.2014).
  • Diamond J., Zodrow G. and Carroll, R. (2013) “Macroeconomic Effects of Lower Corporate Income Tax Rates Recently Enacted Abroad” Ernst & Young, March. The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries 609
  • Dunning, J. H. (1988) “The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions” Journal of International Business Studies, 19 (1): 1-31.
  • Edwards, S. (1990) “Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries” National Bureau of Economic Research (Cambridge, M. A.), Working Paper No. 3497.
  • Egger, P. and Raff, H. (2011) “Tax Rate and Tax Base Competition for Foreign Direct Investment” Kiel Working Papers, No: 1734, September.
  • Gordon, Roger H., and James R. Hines Jr. (2002) “International Taxation.” In Handbook of Public Economics, Vol. IV, eds. Alan Auerbach and Martin Feldstein, 1935-1995. Amsterdam: North-Holland.
  • Gropp, R. and Kostial, K. (2000) “The Disappearing Tax Base: Is Foreign Direct Investment (FDI) Eroding Corporate Income Taxes?” IMF Working Paper, October.
  • Helpman, E., Melitz, M. J. and Yeaple, S. A. (2004) “Export versus FDI with heterogeneous firms” American Economic Review, 94(1): 300–16.
  • Jun, J. (1994) “How Taxation Affects Foreign Direct Investment (Country-specific Evidence)” Policy Research Working Paper, The World Bank, No: 1307, June.
  • Kaufmann, D., Kraay, A. and Mastruzzi, M. (2007) “Governance matters VI: aggregate and individual governance indicators 1996-2006” World Bank Policy Research Working Paper, No 4280.
  • Kemsley, D. (1998) “The Effect of Taxes on Production Location” Journal of Accounting Research. 36: 321–341.
  • Kristjánsdóttir, H. (2005) “Determinants of Foreign Direct Investment in Iceland” Centre for Applied Microeconometrics. Department of Economics, University of Copenhagen.
  • Mooij R.A. and Ederveen, S. (2005) “How Does Foreign Direct Investment Respond to Taxes? A metaAnalysis” Conference on Foreign Direct Investment and Taxation, 3 October 2005: 1-32.
  • Morrissey, O. and Y. Rai (1995) “The GATT Agreement on Trade Related Investment Measures: Implications for Developing Countries and their Relationship with Transnational Corporations” Journal of Development Studies, 31(5): 702-724
  • Morisset, J. and Pirnia, N. (1999) “How Tax Policy and Incentives Affect Foreign Direct Investment: A Review” World Bank Policy Research Working Paper, No. 2509, November.
  • Mottaleb, K. A. and Kalirajan, K. (2010) “Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis” ASARC Working Paper 2010/13, Australian National University, Australia South Asia Research Centre
  • Nigh, D. (1985) “The Effect of Political Events on United States Direct Foreign Investment: A Pooled Time-series Cross-sectional Analysis” Journal of International Business Studies, 16: 1–17.
  • OECD (2007) “Tax Effects on Foreign Direct Investment (Recent Evidence and Policy Analysis)” OECD Tax Policy Studies, No: 17.
  • OECD (2014) Statistics http://stats.oecd.org/ Index.aspx?DatasetCode=FDI_FLOW_ PARTNER# (26.05.2015) Pistoresi, B. (2000) “Investimenti diretti esteri e fattori di localizzazione: L’America Latina e il Sud Est asiatico” Rivista di Politica Economica, 90: 27– 44.
  • Porcano, T. M. and C. E. Price (1996) “The Effects of Government Tax and Non-tax Incentives on Foreign Direct Investment” Multinational Business Review, 4: 9–20.
  • Sanjo, Y. (2012) “Country risk, country size, and tax competition for foreign direct investment” International Review of Economics and Finance, 21: 292-301.
  • Sato, T. (2012) “Empirical Analysis of Corporate Tax and Corporate Tax and Foreign Direct Investment” Public Policy Review, 8 (1): 1-20.
  • Schneider, F. and Frey, B. (1985) “Economic and Political Determinants of Foreign Direct Investment” World Development, 13(2): 161-175.
  • Scholes M.S., and Wolfson M.A., (1992) Taxes and business strategy: A planning approach Prentice-Hall, Englewood Cliffs, NJ.
  • Shahzad N. and Zahid M. (2011) “The Determinants of Foreign Direct Investment in Pakistan” Abasyn Journal of Social Sciences, 5(1): 111-121.
  • Swenson, D.L. (1994) “The Impact of U.S. tax reform on Foreign Direct Investment in the United States” Journal of Public Economics, 54: 243-266.
  • Sudsawasd, S. (2008) “Taxation, Business Regulation and Foreign Direct Investment In East Asia” in Soesastro. H. (ed), Deepening Economic IntegrationThe ASEAN Economic Community and Beyond-, ERIA Research Project Report 2007-1-2, Chiba: IDE-JETRO: 239-265.
  • Wisniewski, T.P. and Pathan, S.M. (2014) “Political Environment and Foreign Direct Investment: Nida ABDiOĞLU, Mine BiNiŞ, Mehmet ARSLAN 610 Evidence from OECD countries” European Journal of Political Economy, 36: 13-23.
  • Young, K.H. (1988) “The Effects of Taxes and Rates of Return on Foreign Direct Investment in the United States” National Tax Journal, 41 (1): 109-121.
  • Yulin, N. and M. R. Reed (1995) “Locational Determinants of U. S. Direct Foreign Investment in Food and Kindered Products” Agrobusiness, 11: 77– 86
There are 44 citations in total.

Details

Other ID JA23KR43DH
Journal Section Research Article
Authors

Nida Abdioğlu This is me

Mine Biniş This is me

Mehmet Arslan This is me

Publication Date September 1, 2016
Published in Issue Year 2016 Volume: 16 Issue: 4

Cite

APA Abdioğlu, N., Biniş, M., & Arslan, M. (2016). The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries. Ege Academic Review, 16(4), 599-610.
AMA Abdioğlu N, Biniş M, Arslan M. The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries. ear. September 2016;16(4):599-610.
Chicago Abdioğlu, Nida, Mine Biniş, and Mehmet Arslan. “The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries”. Ege Academic Review 16, no. 4 (September 2016): 599-610.
EndNote Abdioğlu N, Biniş M, Arslan M (September 1, 2016) The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries. Ege Academic Review 16 4 599–610.
IEEE N. Abdioğlu, M. Biniş, and M. Arslan, “The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries”, ear, vol. 16, no. 4, pp. 599–610, 2016.
ISNAD Abdioğlu, Nida et al. “The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries”. Ege Academic Review 16/4 (September 2016), 599-610.
JAMA Abdioğlu N, Biniş M, Arslan M. The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries. ear. 2016;16:599–610.
MLA Abdioğlu, Nida et al. “The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries”. Ege Academic Review, vol. 16, no. 4, 2016, pp. 599-10.
Vancouver Abdioğlu N, Biniş M, Arslan M. The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries. ear. 2016;16(4):599-610.