THE IMPACT OF FLAT TAX RATES ON FOREIGN DIRECT INVESTMENT

Abstract

Main aim of this paper is to investigate the effect of corporate income tax rates on foreign direct

investment (FDI) in the countries which has flat tax application in the pattern of long-run relationship

of FDI and its determinants which are known as market size, labor cost, trade barrier, growth rate,

openness, trade deficit, and tax rates. For the empirical analysis we use annual data for 1990-2014 for the

countries which have applied flat tax reforms and smaller corporate income tax rates in order to focus

and draw out the effect of tax rate instrument on capital movements in the point of tax competition.

According to panel regression and cointegration results, corporate tax rate has significant and negative

impact on FDI.

Keywords

• Flat Tax,Tax Competition,Foreign Direct Investment

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