The Effect of Tax-Burdens on Foreign Direct Investment: A Cross-Sectional Look at Developing Economies
Kevin Hauver
Abstract: This paper investigates the effect that certain aspects of the tax burden have on foreign direct investment in developing economies. Using data from 35 select countries, the paper uses an OLS regression model to determine the impact that various taxes, both on individuals and corporations, can have on FDI. The paper concludes that corporate tax rates are not a statistically significant factor for determining FDI inflows into a host country, but that indirect tax rates are. This is likely due to the use of ‘enterprise zones’, which offer favorable indirect tax rates to companies that choose to operate in a certain region of a host country.
JEL classification: F21, F23, H24, H25, C31 Keywords: Foreign direct investment, Capital taxation
Department of Economics, Bryant University, 1150 Douglas Pike, Smithfield, RI 02917. Email: khauver@bryant.edu. Phone: (978) 870-8706 ______________________________________________________ The author would also like to thank Dr. Ramesh Mohan, professor of economics at Bryant University, for all of his help and assistance. Empirical Economic Bulletin, Spring 2009, Vol. 2
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