Fancy a stay at the Hotel California? Foreign direct investment, taxation and exit costs

Arbeitspapier

This paper looks at the trade off between investment incentives and exit costs for the location of foreign direct investment (FDI). This issue does not appear to have been tackled in much detail in the literature. The analysis considers the effect of profit taxation (as a measure of investment incentives) and an index of hiring and firing costs (proxying exit costs) on the location of US outward FDI in 33 host countries. The results suggest that US FDI, in particular in manufacturing is negatively affected by the level of profit taxation and exit costs. Hence, if countries want to attract FDI it may not suffice that incentives are provided in order to ease the entry of multinationals. Instead, it also appears to be important that exit costs are at a level attractive to multinationals. In other words, multinationals may not check into an attractive looking Hotel California type host country if it is difficult to leave.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DNB Staff Reports ; No. 96

Classification and Topics

• Classification: Wirtschaft ; Multinational Firms; International Business ; Business Taxes and Subsidies including sales and value-added (VAT) ; Unemployment Insurance; Severance Pay; Plant Closings
• Subject: foreign direct investment ; exit costs ; firing costs ; investment incentives ; taxation ; Direktinvestition ; Amerikanisch ; Standortfaktor ; Ertragsteuer ; Kündigungsschutz ; Schätzung ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Görg, Holger
• Event: Veröffentlichung
• (who): De Nederlandsche Bank
• (where): Amsterdam
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/2929
• Last update: 10.03.2025, 11:43 AM CET