Infrastructure Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central- and Eastern European Countries

Bellak, Christian; Leibrecht, Markus; Damijan, Jože P.

doi:10.2139/ssrn.1106117

Cited by 35 publications

(42 citation statements)

References 33 publications

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“…These reflect national or bilateral tax incentives on the discrete choice of where to locate profitable, that is, inframarginal, investment projects. 4 Effective tax rates which capture cross-border tax regulations perform well in recent empirical analyses (Bellak et al, 2009;Egger et al, 2009a,b).…”

Section: A Brief Review Of the Literaturementioning

confidence: 88%

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Fdi and Taxation: A Meta-Study

Feld

Heckemeyer

2011

Journal of Economic Surveys

234

150

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08128.pdf Non-technical summaryDespite the continuing political interest in the usefulness of tax competition and tax coordination as well as the wealth of theoretical analyses, it still remains open whether or when tax competition is harmful. Moreover, the influence of tax differentials on multinationals' decisions is still insufficiently analyzed. Thus, economists have increasingly resorted to empirical analysis in order to gain insights on the elasticity of foreign direct investments (FDI) with respect to company taxation. As a result, the empirical literature on taxation and international capital flows has grown to a similar abundance during the last 25 years as the respective theoretical literature. Its heterogeneity leads to a rising need for concise reviews on the existing empirical evidence. In this paper we extend former meta-analyses on FDI and taxation in three ways. First, we add the most recent publications unconsidered in meta-analyses up-todate. Second, we apply a different methodology by using a broad set of meta-regression estimators and explicitly discuss which one is most suitable for application to our meta-data.Third, we address some important issues in research on FDI and taxation to the clarification of which meta-analysis can make valuable contributions. These issues are mainly: The influence of variables which might moderate effects of tax differentials (e.g. public spending), the implications of using aggregate FDI data as opposed to firm-level information on measured tax effects, the implications of bilateral effective tax rates, and the possible presence of publication bias in primary research.According to our meta-analysis, a pooled effect based on the median result taken from each primary study could be obtained that amounts to a semi-elasticity for company taxes on FDI (percentaged reaction of FDI to one percentage point change in the tax burden) of 1.68 in absolute terms.We do not find overwhelming support for publication bias in the meta-regressions. The use of aggregate data leads to higher estimated semi-elasticities, but significantly reduces t-values and thus implies less precise estimates. Regarding the choice of tax rates, unilateral effective average tax rates do not lead to significantly higher tax effect size estimates or significances as compared to the statutory rate. Bilateral tax rates best capture tax incentives and yield both s...

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Section: A Brief Review Of the Literaturementioning

confidence: 88%

“…Other studies opt for a gravity set-up as successfully applied in the empirical trade analyses (e.g. Bellak et al, 2009). The gravity approach explains intercountry FDI patterns by a combination of mass variables (e.g.…”

Section: A Brief Review Of the Literaturementioning

confidence: 99%

Fdi and Taxation: A Meta-Study

Feld

Heckemeyer

2011

Journal of Economic Surveys

234

150

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“…In particular in the case of vertical FDI, we expect higher tariffs to be associated with fewer subsidiaries and less investment, whereas in the case of horizontal FDI, higher tariffs may also attract additional firms to avoid tariffs (see, for example, Horstmann and Markusen, 1992). Finally, improvements in infrastructure may positively affect location and investment decisions (see Bellak et al, 2009;Bénassy-Quéré et al, 2007). Therefore, we account for the EBRD index for infrastructure, which reflects the development in regulatory reforms.…”

Section: Effects Of Company Taxation In Eu Countriesmentioning

confidence: 99%

The effects of company taxation in EU accession countries on German FDI¹

Overesch¹,

Wamser²

2010

Economics of Transition

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This article investigates how company taxation affects German foreign direct investment (FDI) in European Union (EU) accession countries. In 2004 and 2007, 10 former socialist eastern European countries joined the EU. Although the EU integration is associated with increasingly favourable investment conditions, accession countries also pursue active strategies to attract foreign firms. In particular, taxes on corporate income have been significantly reduced during the last decade. We analyse whether corporate tax policies of eastern European countries affect three aspects of multinational activity: the location decision, the investment decision and the capital structure choice. The results suggest that local taxes are negatively related to both location and investment decisions. The analysis of the capital structure confirms that higher local taxes imply higher debt-to-capital ratios.JEL classifications: F23, H25, P20.

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“…Yet, according to information given by national statistical offices this variable is calculated as a residual between energy demand and energy supply and thus captures more than pure distribution losses. 8 Bellak et al (2007a) include graphs for the three sub-categories of infrastructure. We expect the sign of the various infrastructure variables to be positive as a higher quantity of infrastructure provided reduces production costs and thus leads ceteris paribus to a higher profitability of the investment.…”

Section: (Iii) Variables Of Main Interest -Infrastructurementioning

confidence: 99%

“…17 17 Note that we conducted a year and country ‘jackknife’ analysis which shows that our results are robust with respect to the exclusion of countries and years. More details can be found in Bellak et al (2007a). …”

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confidence: 99%