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Monday, 21 September 2009

FDI and Taxation

A new paper examines how different public policies affect the level of FDI in developed and developing countries. Particularly of interest to the discussion on this website is the relationship between FDI and taxation. The paper finds that "FDI is sensitive to host country taxation in developed countries, but not in developing countries". This is essentially a confirmation of the Chang critique. The upshot of the paper is that governance and infrastructure improvement should come before obsession with reducing taxes in the name of attracting FDI.

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