A comprehensive study reveals how corporate income tax rates influence foreign direct investment flows in EU nations.
Corporate income tax (CIT) systems across the European Union (EU) present striking diversity in both statutory rates and effective burdens. While some Member States such as Hungary and Ireland pursue ultra-low rates of 9% and 12.5% respectively, others like Portugal, France, and Germany maintain headline rates close to or above 30%. These divergences not only influence government revenues but also play a central role in shaping foreign direct investment (FDI) flows, competitiveness, and fiscal sustainability. This study undertakes a comprehensive comparative analysis of CIT rates and their relationship with FDI in six EU countries—Portugal, Germany, Netherlands, Ireland, France, and Hungary—using OECD, Eurostat, and World Bank data up to 2023. Employing descriptive comparisons and an ordinary least squares (OLS) model, the research evaluates whether lower CIT rates systematically attract higher FDI as a share of GDP. The findings suggest that while statutory rates remain an important signal, effective tax burdens, investment incentives, and broader institutional contexts matter more in determining FDI location. The study contributes to the debate on EU tax harmonization versus fiscal competition by providing empirical insights and policy implications for balancing competitiveness with revenue mobilization.
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A 2025 study studied this question.
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