FOREIGN DIRECT INVESTMENTS AND CORPORATE TAX RELATIONSHIP IN SOME EU MEMBER COUNTRIES: EVIDENCE BEFORE AND AFTER THE 2007-2008 GLOBAL FINANCIAL CRISIS

Abstract

The global financial crisis which started to show its effects in middle 2007 and into 2008 was the latest worst financial crisis in the world wide. The aim of this study is to examine the relationship between the dependent variable foreign direct investment and independent variable corporate tax rate in some EU member countries for two different periods (1995-2006 and 2007-2014), before and after the global financial crisis. Two important independent variables that may have effects on the dependent variable such as trade openness and gross domestic product were also included in the Panel Data Models. Several panel data models were estimated and most proper models were determined based upon the econometric methodology. Based on the sample results, all coefficients were found to be statistically significant and all economic expectations were satisfied in the model estimates for 1995-2006 periods. On the other hand, only corporate tax rate’s coefficient was found to be statistically significant and its economic expectation was satisfied in the model estimates for 2007-2014 periods. Trade openness and gross domestic product independent variables’ coefficients were found to be statistically insignificant in the model estimates for 2007-2014 periods.