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

October 1, 2000

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes the link between 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 European Union (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.

Subject: Balance of payments, Corporate income tax, Corporate taxes, Foreign direct investment, Revenue administration, Tax harmonization, Taxes

Keywords: Corporate income tax, Corporate taxation, Corporate taxes, equations following, FDI flow, FDI inflow, FDI outflow, foreign direct investment, Global, net FDI position, OECD countries, outflow component, revenue elasticity, revenues, simulations, Tax harmonization, WP

Pages:
39
Volume:
2000
DOI:
https://doi.org/10.5089/9781451858624.001
Issue:
173
Series:
Working Paper No. 2000/173
Stock No:
WPIEA1732000
ISBN:
9781451858624
ISSN:
1018-5941

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