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On the appropriate measure of tax burden on foreign direct investment to the CEECs

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  • Christian Bellak
  • Markus Leibrecht
  • Roman Romisch

Abstract

We argue from a conceptual and empirical point of view that tax-rate elasticities of foreign direct investment (FDI) to Central and East European Countries (CEECs) derived from statutory tax rates (STRs) are likely to be flawed. STRs are problematic measures of tax burden as they capture neither tax base effects, nor effects of the home country or international and supranational tax laws. From an empirical point of view STRs are questionable as their behavior over time and between country-pairs may differ from that of the conceptually superior bilateral corporate effective average tax rates (BCEATRs) of the Devereux-Griffith type. The variability of host-country STRs and BCEATRs of seven major home countries of FDI in eight major CEEC host countries is compared via Levene-tests for 1995--2005. Results indicate that using STRs instead of BCEATRs in empirical investigations of FDI is likely to result in tax-rate elasticities which are too low in absolute value.

Suggested Citation

  • Christian Bellak & Markus Leibrecht & Roman Romisch, 2007. "On the appropriate measure of tax burden on foreign direct investment to the CEECs," Applied Economics Letters, Taylor & Francis Journals, vol. 14(8), pages 603-606.
    • Handle: RePEc:taf:apeclt:v:14:y:2007:i:8:p:603-606
    DOI: 10.1080/13504850500474202
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    Cited by:

    1. Sacchidananda Mukherjee & Shivani Badola, 2023. "Macroeconomic Implications of Changes in Corporate Tax Rates: A Review," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(1), pages 20-41, March.
    2. Christian Bellak & Markus Leibrecht & Jože P. Damijan, 2009. "Infrastructure Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central and Eastern European Countries," The World Economy, Wiley Blackwell, vol. 32(2), pages 267-290, February.
    3. Hongxing Cao & Huirong Zhan & Yuan Wang & Ziyao Wei, 2021. "Sino-Bulgarian Economic Relations in the Post Pandemic World," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 177-196, July.
    4. Bebonchu Atems & John K Mullen, 2016. "Outward FDI from the USA and host country financial transparency," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(8), pages 1122-1143, November.

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