THE INFLUENCE OF THE TAX BURDEN ON PROFITS ON THE MOVEMENT OF FOREIGN DIRECT INVESTMENT IN THE COUNTRIES OF THE EUROPEAN UNION

Marija Davidovic () and Hrvoje Simovic ()
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Marija Davidovic: University of Zagreb, Faculty of Economics and Business
Hrvoje Simovic: University of Zagreb, Faculty of Economics and Business

Economic Thought and Practice, 2024, vol. 33, issue 2, 425-451

Abstract: The aim of this research is to examine the impact of changes in the tax burden on profits on the flow of foreign direct investment in the European Union countries. While tax factors are not decisive in making investment decisions, the issue of taxes and the overall tax system is becoming increasingly significant in investors' choices. Empirical research in this study is conducted using a dynamic panel analysis (PMG/ARDL) to assess the effect of the tax burden on profits on the movement of foreign direct investment in the short and long term. The empirical results show that the tax burden on profits has a significant impact on the attractiveness of foreign direct investment in the European Union member states, with the most significant impact coming from the effective average tax rate on profits. The issue of changing tax rates and their impact on foreign direct investment inflows is always relevant, as governments strive to attract foreign investment that have a positive impact on economic growth and development, and promote the creation of new jobs while enhancing human capital, skills, and knowledge.

Keywords: tax burden on profits; effective tax burden; foreign direct investment; panel ARDL; European Union (search for similar items in EconPapers)
JEL-codes: C51 F21 F23 H25 O52 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.17818/EMIP/2024/2.4

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