Democratic Accountability, Regulation and Inward Investment Policy

22 Pages Posted: 24 Jun 2014

See all articles by Micahel Dorsch

Micahel Dorsch

Central European University (CEU)

Eoin McGuirk

Yale University

Fergal McCann

Central Bank of Ireland

Date Written: July 2014

Abstract

We examine the effect of domestic political accountability on leaders' strategies for attracting foreign direct investment to less developed countries. We consider two policy areas: the tax burden imposed on firms and the regulatory environment in which they operate. We find that democratic governments are more likely to offer relatively lower tax rates to foreign investors, whereas autocratic governments are more likely to offer relatively lax regulation. This result is driven by the greater elasticity of the political survival function to environmental and labor regulations in more democratic countries. Analyses of firmā€level survey data confirm our main theoretical conclusions.

Suggested Citation

Dorsch, Micahel and McGuirk, Eoin and McCann, Fergal, Democratic Accountability, Regulation and Inward Investment Policy (July 2014). Economics & Politics, Vol. 26, Issue 2, pp. 263-284, 2014. Available at SSRN: https://ssrn.com/abstract=2458209 or http://dx.doi.org/10.1111/ecpo.12034

Micahel Dorsch

Central European University (CEU) ( email )

Nador utca 9
Budapest, H-1051
Hungary

Eoin McGuirk

Yale University ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Fergal McCann

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

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