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A note on the appropriate measure of tax burden on Foreign Direct Investment to the CEECs

Christian Bellak (), Markus Leibrecht and Roman Römisch ()

No 336, HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA)

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; Multinational Enterprises (search for similar items in EconPapers)
JEL-codes: F2 H25 H00 (search for similar items in EconPapers)
Date: 2005
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