Corporate income taxation uncertainty and foreign direct investment

This paper analyzes the effects of legal uncertainty around corporate income taxation on foreign direct investment (FDI). Legal uncertainty can take many forms: double tax agreements, different types of legal systems and corruption. We test the effect of legal uncertainty on foreign direct investment with an international panel. We find that an increase in the ratio of the statutory corporate income tax rate of the destination relative to the source country exhibits a negative impact on foreign direct investment. Interacting the statutory corporate income tax rate with measures of legal uncertainty, we observe a negative effect.