Effective Tax Rates as a Determinant of Foreign Direct Investment in Central and East European Countries: A Panel Analysis

SFB International Tax Coordination Paper No. 7

29 Pages Posted: 12 Dec 2005

See all articles by Christian Bellak

Christian Bellak

WU, Vienna University of Economics and BA

Markus Leibrecht

Vienna University of Economics and Business Administration

Date Written: September 19, 2005

Abstract

The Central- and East European Countries have lowered their corporate tax rates substantially in order to induce shifts of production capacity to their countries. This paper analyses empirically how inward Foreign Direct Investment (FDI) flows channeled to these countries reacts to these tax policies. We estimate a panel of 35 bilateral country-relationships over a period of 1995-2002. Results suggest a semi-elasticity of -2.93 which is in line with results derived in studies mainly on OECD countries. This indicates that from an individual country perspective, tax-lowering strategies have been successful in the past, yet they may not be a successful policy option for the future when privatization-related FDI will decrease.

Keywords: Taxation, Foreign Direct Investment, Multinational Enterprises, Transformation Economies

JEL Classification: F21, H25

Suggested Citation

Bellak, Christian and Leibrecht, Markus, Effective Tax Rates as a Determinant of Foreign Direct Investment in Central and East European Countries: A Panel Analysis (September 19, 2005). SFB International Tax Coordination Paper No. 7 . Available at SSRN: https://ssrn.com/abstract=869220 or http://dx.doi.org/10.2139/ssrn.869220

Christian Bellak (Contact Author)

WU, Vienna University of Economics and BA ( email )

Welthandelsplatz 1
Vienna, Vienna 1020
Austria
00431313364505 (Phone)

HOME PAGE: http://https://www.wu.ac.at/u/bellak/

Markus Leibrecht

Vienna University of Economics and Business Administration ( email )

Augasse 2-6
A-1090 Wien
Austria

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