Do taxes push foreign investment away, and does it depend on what the investment is for?
Multiple Taxes and Alternative Forms of FDI: Evidence from Cross-Border Acquisitions
Nils Herger (2016) · International Tax and Public Finance
Article ↗ · Replication data ↗ (openICPSR)
The archive requires an account we do not hold, so the files were not opened. What follows rests on the published abstract and on this platform's own observations.
What the authors found
Herger decomposes cross-border mergers — the dominant form of FDI — into horizontal and vertical strategies over 1999 to 2010, and finds the tax effect is more nuanced than usually claimed. Corporate taxes do reduce FDI, but the elasticity depends on the strategy, with vertical FDI generally more responsive, and on which tax is measured: double taxation and withholding taxes matter separately from the headline corporate rate.
What our data adds
Ranking economies by FDI inflows as a share of GDP produces a list that is hard to read as investment in productive capacity. Suriname tops it at 45.1 per cent, followed by Cyprus at 27.1 and Singapore at 26.3. Below them sit Antigua and Barbuda, Grenada, Saint Vincent and the Grenadines, Saint Lucia and Dominica — small open economies where a single transaction moves the national ratio, and several of which appear on tax-transparency lists. Reading this table as 'where the world builds factories' would be a serious misreading, and that ambiguity is the paper's subject.
Small open economies dominate, which is the note's point.
| Figure | Value | Indicator |
|---|---|---|
| Suriname, FDI net inflows as a share of GDP | 45.1% | BX.KLT.DINV.WD.GD.ZS |
| Cyprus | 27.1% | BX.KLT.DINV.WD.GD.ZS |
| Singapore | 26.3% | BX.KLT.DINV.WD.GD.ZS |
Every figure here is computed from observations in this database and can be charted, downloaded or queried.
What this cannot show
Net FDI inflows in the balance of payments include the purchase of an existing firm, the retention of earnings by an existing affiliate, and pure holding-company flows passing through. It cannot distinguish horizontal from vertical investment, which is the paper's core decomposition, and it does not identify greenfield investment at all. Suriname's 45.1 per cent almost certainly reflects a single extractive project rather than a broad investment climate.