The effect of corporate tax and labor tax rates on FDI flows
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2024-09-27
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en
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This master’s thesis utalizes a gravity equation model to analyse the determinants of FDI flows between the OECD member states. Beside the standard FDI variables in the literature, such as GDP, distance, trade openness and common language, the focus of this thesis is on the effects of the host country tax rates, specifically the labor tax rate and the corporate tax rate. A period of 2000-2022 is analysed using the preffered estimator the Poisson Pseudo maximum likelihood (PPML) estimator. OLS regressions are ran as robustness. In the second step of the analysis, the potential moderating effects of the host country economic structure are analysed. The variable capital intensity as a proxy for economic structure is incorporated as a interaction term with the tax rate in the model. The hypothesized relationships are that both a higher corporate tax rate and a higher labor tax rate result in a reduction in FDI flows. Moreover, that the corporate tax rate matters more in countries characterized by capital intensive economies and the labor tax rate more in countries characterized by labor intensive industries. The main results suggest that there are some relations, but no conclusive evidence is found.
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Faculteit der Managementwetenschappen