A Note on the Appropriate Measure of Tax Burden on Foreign Direct Investment to the Ceecs

13 Pages Posted: 17 Jan 2006

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: December 2005

Abstract

In this note we show that tax-rate elasticities of Foreign Direct Investment (FDI) to Central and East European Countries (CEECs) derived from statutory corporate income tax rates (STRs) are likely to be flawed. From a conceptual point of view STRs are problematic as they neither capture tax base effects, nor effects of the home country, the international or the supranational tax laws on the corporate tax burden. Concerning FDI, from an empirical point of view STRs are questionable as their behavior over time and between country-pairs may be very different from that of the conceptually superior bilateral corporate effective average tax rates (BCEATRs). We compare the variability of STRs and BCEATRs of seven major home countries of FDI in eight major CEEC host countries during the period 1995-2005 via Levene-tests, using a unique dataset. Results confirm that using STRs instead of BCEATRs in empirical investigations of FDI is likely to result in too low tax-rate elasticities.

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

JEL Classification: F2, H00, H25

Suggested Citation

Bellak, Christian and Leibrecht, Markus, A Note on the Appropriate Measure of Tax Burden on Foreign Direct Investment to the Ceecs (December 2005). HWWA Discussion Paper No. 336, Available at SSRN: https://ssrn.com/abstract=875525 or http://dx.doi.org/10.2139/ssrn.875525

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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