How Does FDI React to Corporate Taxation?

Based on a panel of bilateral FDI flows among 11 OECD countries over 1984–2000, we show that, although agglomeration-related factors are strong determinants of FDI, tax differentials also play a significant role in understanding foreign location decisions. We further investigate non-linearities in the impact of tax differentials, and explore the impact of tax schemes. Our results are consistent with the imperfect competition literature which underscores the possibility of tax differentials across countries in equilibrium. Copyright Springer Science + Business Media, Inc. 2005