handbook-tb

Tax incentives: protecting the tax basefor achieving a particular investment objective? And second, from atax perspective, how would activities be structured to minimize taxliabilities (both on a country basis and an aggregate worldwide basis)?1.5 Review of empirical evidenceSeveral economic studies have examined the effect of taxes on investment,particularly foreign direct investment. While it is not easy tocompare the results of different empirical studies, scholars haveattempted to survey the various studies and to reach some conclusionsas regards the effect of taxes on levels of foreign investment. Usefulsurveys are included in the “Ruding Report,” 13 Hines, 14 Mooij andEderveen, 15 and Klemm and Van Parys. 16 These surveys note the difficultyof comparing the results of different studies because the studiescontain different data sources, methodologies and limitations. Thestudies also report different types of elasticities in measuring theresponsiveness of investment to taxes.Part of the difficulty in determining the effect of taxes on foreigninvestment is getting a good understanding of the different typesof foreign investment and the different sources of funding for foreigninvestment. Foreign investment consists of both portfolio and directinvestment. While different ways to distinguish portfolio and directinvestment exist, a common approach is to focus on the foreign investor’spercentage ownership of the domestic enterprise. For example,13Commission of the European Communities (CEC), Report of the Committeeof Independent Experts on Company Taxation (1992) (Official Publicationsof the EC, ISBN 92-826-4277-1).14James R. Hines, Jr., “Tax Policy and the Activities of MultinationalCorporations,” in Alan Auerbach, ed., Fiscal Policy: Lessons from EconomicResearch (Cambridge, MA: MIT Press, 1997) and James R. Hines, Jr., “Lessonsfrom Behavioral Responses to International Taxation,” (1999) Vol. 52,National Tax Journal, 305.15Ruud A. de Mooij and Sjef Ederveen, “Taxation and Foreign DirectInvestment: A Synthesis of Empirical Research,” (2003) Vol. 10, No. 6 InternationalTax and Public Finance, 673-93.16Alexander Klemm and Stefan Van Parys, “Empirical Evidence on theEffects of Tax Incentives,” International Monetary Fund (Washington, D.C.:IMF, 2009).459