Contents

The Impact of Tax Treaties on Foreign Direct Investment: the Evidence Reconsidered

Lee, Si Wook / Kim, Daeyong

  • 277 ITEM VIEW
  • 421 DOWNLOAD
Abstract

The existing empirical literature often reports a non-significant or even negative impact of tax treaties on foreign direct investment. Such mixed evidence stokes controversy over the validity of tax treaties. This paper reconsiders the empirical evidence for the relationship between tax treaties and FDI, using U.S. outbound FDI to 78 countries over the period 2007–2018. Unlike previous studies, this one explicitly controls for differences in the tax environments of recipient economies, including tax haven status, transfer pricing rules, CFC rules, anti-avoidance regulations and corporate income tax rates, in the estimation. Our results confirm the importance of controlling for country-specific tax environments, especially tax haven status and transfer pricing rules, to avoid omitted variable bias. We find that tax treaties positively contribute to FDI inflow in developing countries, while they have no statistically significant impacts to OECD countries. Recently-signed tax treaties still foster FDI but less than older ones do. Finally, our results indicate that, other things being equal, the weaker the transfer pricing regulations, the greater the amount of U.S direct investment into a recipient country.

Issue Date
2021-12
Publisher
KDI School of Public Policy and Management
Keywords
Tax treaties; Foreign direct investment; Tax havens; Tax regulations
Pages
22
Series Title
KDIS Working Paper 21-08
URI
https://archives.kdischool.ac.kr/handle/11125/42886
URL
https://www.kdischool.ac.kr/#/www/content/faculty_and_research/research/working_paper_series?contentId=38205
DOI
10.2139/ssrn.3995034
Files in This Item:

Click the button and follow the links to connect to the full text. (KDI CL members only)

qrcode

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.

상단으로 이동