United nations of tax incentives

VI . 
Review of empirical evidence
Several economic studies have examined the effect of taxes on 
investment, particularly foreign direct investment. While it is not easy 
to compare the results of different empirical studies, scholars have 
attempted to survey the various studies and to reach some conclusions 
as regards the effect of taxes on levels of foreign investment.
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Such 
surveys note the difficulty of comparing the results of different studies 
because the studies contain different data sources, methodologies and 
limitations. The studies also report different types of elasticities in 
measuring the responsiveness of investment to taxes.
Part of the difficulty in determining the effect of taxes on 
foreign investment is getting a good understanding of the different types 
of foreign investment and the different sources of funding for foreign 
investment. Foreign investment consists of both portfolio and direct 
12 
See Commission of the European Communities, 
Report of the Committee of 
Independent Experts on Company Taxation
(Brussels, Office for Official Publications 
of the European Communities, 1992); see also James R. Hines, Jr., “Tax Policy and 
the Activities of Multinational Corporations,” in 
Fiscal Policy: Lessons from Econom-
ic Research
(Cambridge, Massachusetts: MIT Press, 1997), Alan Auerbach, ed., and 
James R. Hines, Jr., “Lessons from Behavioral Responses to International Taxation”, 
National Tax Journal
, vol. 52 (1999); Ruud A. de Mooij and Sjef Ederveen, “Taxation 
and Foreign Direct Investment: A Synthesis of Empirical Research”, 
International 
Tax and Public Finance
, vol. 10, No. 6 (2003); and Alexander Klemm and Stefan Van 
Parys, “Empirical Evidence on the Effects of Tax Incentives”, International Monetary 
Fund (Washington, D.C., IMF, 2009).
7. Foreign exchange rules and the ability to repatriate profits.
8. Language and cultural conditions.
9. Factor and product markets—size and efficiency.

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