The Fiscal Effectiveness of the Provision of Investment Incentives

Foreign direct investments undoubtedly have a significant impact on the national economy. They contribute to economic growth, to reducing the unemployment rate and they also positively affect other macroeconomic indicators. Foreign companies bring with them not only foreign capital that they invest in the host country, but also new technology, modern and more effective production and management methods, classic standards of business conduct, new jobs as well as opportunities for domestic suppliers.Host countries then attempt to attract foreign investors via active policies through investment incentives and various preferential conditions for investing. Investment incentives for foreign investors are thus among the important public spending programs. Basic investment incentives in countries with transitive economies within the European Union include income tax credits, respectively tax holidays, the transfer of land for a subsidized price, one-time financial support for the creation of new jobs and financial support for retraining employees. The provision of investment incentives means not only an increase on the expenditure side of the public budget or a decrease of the income side of the public budget (due to tax credits), but it usually leads ? as our research demonstrated ? to a start of the influx of revenue sources for public budgets, already in the short or medium term horizon. The aim of the research was to develop a methodology for measuring the fiscal effectiveness of provided investment incentives in the process of their implementation, to determine what the effects are on the income side of the national budget, and for this purpose construct an indicator of fiscal effectiveness whose functional and explanatory power would need to be tested in practice among the recipients of investment incentives.The fiscal effectiveness of investment incentives was constructed as the share of outputs (in the form of revenues from taxes, social and health insurance, fees, savings on the expenditure side of the budget) on a unit of inputs (income tax credit, financial support for a created job, subsidy to cover the costs of employee retraining, administrative costs of collecting taxes, subsidies on the technical equipment of an area on which production is to be located, subsidy on the price of land). With regard for business plans, fiscal effectiveness was assessed for a period of 5 years from the approval and receipt of the investment incentive in a set of industrial enterprises in the Czech Republic. The research also covered results that were attained in Slovakia.