2nd EUROFRAME conference on economic policy issues in the European Union Trade, FDI and relocation: challenges for employment and growth in the European Union Capital mobility and tax competition in the EU after enlargement

draft, comments welcomed Accession of new member states with lower corporate taxation has raised fears on tax competition within enlarged Europe. This paper addresses the issue by calculating effective tax rates and showing relative tax burden in the new and old member states. Then, the issue of tax competition and its effects on investment is examined indirectly by looking at the responsiveness of FDIs to effective taxation. The panel data is analyzed with investors from old member states and EU-8 as receiving countries. The study does not find strong evidence that comparative tax advantage of the new member states expressed by lower statutory and effective corporate tax rates influences the location of FDI coming from EU-15