This paper examines the impact of corporate taxation and other factors on the attractiveness
of EU countries to foreign direct investment. In comparison to previous analyses on the location choice
of multinational activity in the EU, we use an improved empirical methodology to account for more
flexible substitution patterns among alternative locations by considering groups of countries with
similar characteristics as location options. In addition, we account for the heterogeneity of investors’
behaviour by considering intra-EU investments and investments from outside the EU. Furthermore, we
identify and quantify similarities and differences with respect to the effects of corporate taxation and
the effects of other factors on the location choice of foreign affiliates in manufacturing and services
