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

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.


Issue Date:
2005
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/26365
Total Pages:
13
JEL Codes:
F2; H00; H25
Series Statement:
HWWA Discussion Paper 336




 Record created 2017-04-01, last modified 2017-04-04

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)