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Impact of Effective Tax Rates and Its Components on Foreign Direct Investment – The Case of the EU Member Countries

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  • Lenka Janíčková
  • Veronika Baranová

Abstract

The empirical literature generally accepts the influence of corporate taxes on the investment decision of the multinationalities. The most papers usually consider more aspect of that tax then only statutory corporate tax rate. Using annual time series data for the period 1998-2011 this paper examines the influence of EMTR and EATR including their components on the foreign direct investments in the EU Member states. The main aim of the paper is to evaluate which of the selected types of effective tax rates explains the investment decisions of the multinationalities the best. The results show that the commonly used indicators of effective tax burden are not the best option for foreign direct investment (FDI) explanation in the investigated model. Perhaps the best indicator for evaluating dependencies between explanatory variables and FDI are the average and marginal effective tax rate from industrial buildings.

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Bibliographic Info

Article provided by University of Economics, Prague in its journal Politická ekonomie.

Volume (Year): 2013 (2013)
Issue (Month): 2 ()
Pages: 209-228

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Handle: RePEc:prg:jnlpol:v:2013:y:2013:i:2:id:895:p:209-228

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Related research

Keywords: panel regression; foreign direct investment; effective marginal tax rate; effective average tax rate;

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References

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  1. Assaf Razin & Joel B. Slemrod, 1990. "Introduction to "Taxation in the Global Economy"," NBER Chapters, in: Taxation in the Global Economy, pages 1-8 National Bureau of Economic Research, Inc.
  2. Asano, Takao, 2010. "Optimal tax policy and foreign direct investment under ambiguity," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 185-200, March.
  3. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1.
  4. Tomáš Havránek, 2009. "The supply of foreign direct investment incentives: subsidy competition in an oligopolistic framework," Prague Economic Papers, University of Economics, Prague, vol. 2009(2), pages 131-155.
  5. Erdal Demirhan & Mahmut Masca, 2008. "Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis," Prague Economic Papers, University of Economics, Prague, vol. 2008(4), pages 356-369.
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