Abstract
Differences between corporate taxation of EU member states drive a wedge between after-tax and pre-tax productivity. This implies that productivity could be increased by reallocating capital from low-tax to high-tax member states. Moreover, the integration of the EU capital market may trigger tax competition among member states. The responsiveness of investors to taxation is crucial for the importance of both the misallocation of capital and the extent of tax competition. In this paper we measure this responsiveness by examining the relation between FDI positions and effective corporate income tax rates. Our estimates show that investors from one EU member state increase their FDI position in another EU member state by approximately four percent if the latter decreases its effective corporate income tax rate by one percentage point relative to the European mean.
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Gorter, J., Parikh, A. How Sensitive is FDI to Differences in Corporate Income Taxation within the EU?. De Economist 151, 193–204 (2003). https://doi.org/10.1023/A:1023913618978
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DOI: https://doi.org/10.1023/A:1023913618978