New Evidence on the Tax Burden of MNC Activities in Central- and East-European New Member States

SFB International Tax Coordination Paper No. 2

33 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

Roman Roemisch

Vienna Institute of International Economic Studies (WIIW)

Date Written: 2005

Abstract

Company-taxation policies in the Central and East European New Member States (CEE-NMS) have been frequently characterised as tax-cutting strategies in order to attract Foreign Direct Investment (FDI). On the basis of a survey of six empirical studies a median value of the tax-rate elasticities of FDI of -0.22 in CEE-NMS and mediterranean periphery countries is derived. Yet, these tax-rate elasticities probably suffer from a sort of measurement error bias since these studies entirely rely on the host country Statutory tax rate as measure of tax burden. Building on a thorough criticism of FDI as a measure reflecting multinational activity and the Statutory tax rate as a reliable measure of the effective tax burden, 315 effective average bilateral tax rates (BEATR) are calculated for seven home countries and five CEE-NMS for the period 1996-2004, following the approach of Devereux and Griffith (1998). Since our empirical results show substantial differences in the variability of the host country Statutory tax rates and the BEATRs, it is contended that the latter should be used as explanatory variables in empirical studies.

Keywords: Corporate income taxation, Effective tax rate, Foreign Direct Investment, Multinational Enterprises

JEL Classification: F2, H00, H25, H77

Suggested Citation

Bellak, Christian and Leibrecht, Markus and Roemisch, Roman, New Evidence on the Tax Burden of MNC Activities in Central- and East-European New Member States (2005). SFB International Tax Coordination Paper No. 2. Available at SSRN: https://ssrn.com/abstract=869222 or http://dx.doi.org/10.2139/ssrn.869222

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

Roman Roemisch

Vienna Institute of International Economic Studies (WIIW) ( email )

A-1010 Vienna
Austria

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