Corporate Tax Policy and Foreign Direct Investment:Based on Empirical Analysis Considering Neighboring Countries’ Policies

As economic globalization progresses, many developed countries have undertaken corporation tax reform to reduce outward foreign direct investment (FDI). Therefore, many researches which analyze the relationship between the reduction in corporation tax rates and FDI have carried out briskly. Although the conclusion is ambiguous, as far as I know, there are only a few researches that have analyzed the influence of corporation tax on FDI while considering the FDI of neighboring countries. In practice, if the movement of capital and labor becomes active through accelerated globalization, it would seem the home-country’s FDI and host-country’s FDI interact with each other. The object of this paper is to analyze to what extent change in the corporation tax rate influences FDI while considering the FDI of neighboring countries. We empirically analyze FDI based on a pooled data of FDI stock among 16 countries over the period 19962006. Consequently, even if the FDI of neighboring countries is included in the model, the after-tax rates of return on capital in each country has a statistically significant positive effects on FDIdepartmental bulletin pape