External financial dependence and FDI responsiveness to corporate tax rates

Azemar, C. and Desbordes, R. (2013) External financial dependence and FDI responsiveness to corporate tax rates. Applied Economics Letters, 20(16), pp. 1472-1476. (doi:10.1080/13504851.2013.826859)

Full text not currently available from Enlighten.

Publisher's URL: http://dx.doi.org/10.1080/13504851.2013.826859

Abstract

We investigate whether the impact of higher corporate tax rates on foreign direct investment (FDI), at home or abroad, depends on the external financial dependence of a given sector. By structurally relying on debt for the funding of their operations, firms operating in externally dependent (ED) sectors in OECD countries benefit from the tax shield provided by the tax-deductibility of debt interest payments. We conjecture that this tax advantage is likely to make them less sensitive to changes in home and host countries’ corporate tax rates than firms in non-ED sectors when engaging in FDI. Using a new proprietary data on bilateral greenfield manufacturing FDI in OECD countries over the period 2003 to 2010, we find empirical support for this hypothesis as firms operating in externally dependent sectors appear to be much less sensitive to home and host corporate tax rates than firms operating in nonexternally dependent sectors.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Desbordes, Dr Rodolphe and Azemar, Dr Celine
Authors: Azemar, C., and Desbordes, R.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Applied Economics Letters
Publisher:Taylor & Francis
ISSN:1350-4851
ISSN (Online):1466-4291

University Staff: Request a correction | Enlighten Editors: Update this record