Nick Shaxson ■ IMF: tax cuts don’t attract investment
From the IMF, a Working Paper. It doesn’t make quite the sweeping claim suggested in the headline, but still.
“Using manufacturing and services firm-level data for 30 sub-Saharan African (SSA) countries, this paper shows that taxation is not a significant driver for the location of foreign firms in SSA, while other investment climate factors, such as infrastructure, human capital, and insitutions, are. By analyzing disaggregate FDI data, the paper establishes that, while there is considerable contrast in behavior between vertical FDI (foreign firms producing for export) and horizontal FDI (foreign firms producing for local markets), taxation is not a key determinant for either type of FDI.”
Our emphasis added. We would have thought that you could find this sort of information on sites such as this one – after all, would you site a car assembly plant in Syria if it offered a fabulous tax break? – but it is still worth measuring these things.
And of course it isn’t just the IMF saying this. A new paper by Francis Weyzig examining the impact of Dutch tax treaties on developing countries has a pithy summary of the research out there:
“Empirical studies show that lower taxes are largely ineffective to attract FDI; determinants like good governance and infrastructure are more important. “
(hat tip: Indra Römgens)