The Disappearing Tax Base

Reint Gropp · Kristina Kostial

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Corporate Taxation and Avoidance Economic and Fiscal Studies Taxation and Legal Issues

Abstract

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.

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References

1991Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making 1996Taxes and the location of production: evidence from a panel of US multinationals 1998Taxes and the location of production: evidence from a panel of US multinationals 1998Cross-Jurisdictional Income Shifting and Earnings Valuation 1979The Estimation of Partial Adjustment Models with Rational Expectations 1990Taxation in the global economy 1984TAX POLICY AND FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 1996Tax Policy and the Activities of Multinational Corporations

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