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The Impact of Fiscal Policy on Foreign Direct Investment  

Author:  António Jacinto Simões.; José Ventura.; Luís A. G. Coelho.

Source: Volume 32, Number 03, Spring 2015 , pp.47-65(19)

Journal of Taxation of Investments

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Many large investors, including corporations, pensions, hedge funds, and even high net worth individuals, have turned to foreign direct investment as a way to take advantage of high-growth economies and favorable tax policies. This article presents a literature survey on foreign direct investment (FDI) and its relation to fiscal policy, which is an increasingly important tool affecting countries’ competitiveness in attracting FDI, mainly in the Euro-zone. The papers analyzed identify some key fiscal policy areas to attract FDI: tax rate, fiscal harmonization, complexity of the fiscal system, fiscal regime of thin capitalization, and the non-existence of (or extremely low) fiscal regime. It is expected that these characteristics will be relevant in the decision-making process, where countries are competing with each other as potential locations for FDI.

Keywords: foreign direct investment, fiscal policy, corporate income tax rate, tax harmonization, tax complexity, tax havens

Affiliations:  1: Évora University; 2: Évora University; 3: Évora University.

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