Tax policy and environmental impact of FDI: Empirical evidence in developing countries

Abstract

The paper empirically analyzes the role of tax policy in FDI-Environmental pollution nexus in developing countries from 2004 to 2016. In general, FDI has a significant effect to increase air pollution in these countries supporting the pollution haven hypothesis. Interestingly, the government plays a crucial role to adjust the environmental impacts of FDI. When the higher quality of institution helps to reduce air pollution, the tax policy has both the direct effect to reduce the level of environmental degradation and the indirect effect through mitigating the harmful environmental impact of FDI in this case.