The Impact of Fiscal Policy on Foreign Direct Investment

Abstract

This article presents a literature survey on Foreign Direct Investment (FDI) and its relation to fiscal policy, which is an increasingly important tool affecting countries’ competitiveness in attracting FDI, mainly in the Euro-zone. The papers analyzed identify some key fiscal policy areas to attract FDI: tax rate, fiscal harmonization, complexity of the fiscal system, fiscal regime of thin capitalization, and the non-existence of (or extremely low) fiscal regime. It is expected that these characteristics will be relevant in the decision-making process, where countries are competing with each other as potential locations for FDI.