Impact of corporate taxation on FDI : -A gravity model analysis

This study uses 300 EU-country pairs over 7 years in a gravity model in order to estimate the sensitivity of taxation on FDI. In line with previous literature, the PPML-estimator is used to estimate the effect of the host country's effective average tax rate on FDI flows. The semielasticity found is –5.6. The result suggests that a one percent unit increase in the host country’s effective average tax rate results in a fall in FDI flows of 5.6%. This estimate is larger than many previous studies using the statutory tax rate but closer to the previous studies also using EATR.