Taxation as a factor in investment attractiveness in the Visegrád countries

ABSTRACT

Managers take into account the tax burden when they decide about a new investment; therefore, they seek countries with lower tax rates. Governments respond to these requirements and battle for new investments by lowering tax rates as part of tax competition. This study focuses on the Visegrád countries as a region of new foreign investments from other OECD countries, and analyses the determinants of a bilateral FDI position of equity. As a model, it uses dynamic panel regression with GMM estimation. Results show that FDIs are affected by the level of difference in corporate taxation and the size of both countries. Every other potential determinant has no effect on the level of investment. These results show that foreign investors care about tax burdens more when investing within the Visegrád Group. Visegrád countries are relatively close when considering conditions for business; therefore, the most important difference becomes the taxation of profits.

KEYWORDS:

• Tax competition
• multinational companies
• foreign direct investment
• tax burden
• Visegrád countries

Acknowledgement

I would like to thank Jana Slavíčková for her help with the text editing.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data that support the findings of this study are openly available in OECD.stat at https://stats.oecd.org/; in World Bank database at https://data.worldbank.org/indicator/NY.GDP.MKTP.CD; and in Transparency International – CORRUPTION PERCEPTIONS INDEX at https://www.transparency.org/en/cpi/.

Additional information

Funding

This work was supported by the Student Grant Competition of University of Pardubice in 2021 (SGS_2021_012, grant no. 12).