Corporate Taxation, Agglomeration and FDI: Firm Level Evidence for Belgium

Abstract

This paper analyzes the sensitivity of Belgian outbound FDI to corporate taxation rates and economic clustering. Our approach involves detailed balance sheet data of the foreign affiliates as our proxy of FDI and a measure of regional knowledge spillovers as agglomeration variable. The results reveal that investments are sensitive to changes in fiscal policy, with an average tax sensitivity of around-1.5. We also pick up an effect of agglomeration economies: a regional increase in the number of own industry firms dampens tax sensitivity.