Relationship between Tax Regulations and Direct Foreign Capital: Case of Balkan Countries

Nuri BALTACI, Muhammet ŞAHİN

Abstract


Abstract. Balkan countries draw attention of many countries and investors after eastern bloc countries spread to free market economy. Moreover, these countries need to attract foreign capital as a development instrumental in order to adapt to the market system. They, for the purpose of attracting foreign capital inflow to their own countries, utilize tax advantages with many other applications. In this study, the relationship between foreign capital and tax in 11 Balkan Countries is examined. Annual data for the period of 2006-2014 was used in this study. System GMM (Dynamic Panel Data) was preferred as a model in this study. According to the findings through the analyses, a negative relationship is observed between indirect taxes and foreign direct capital investments for the sample countries while a positive relationship is found between total tax obligations, obtained from profit based, and foreign direct capital investments.

Keywords. FDI, Tax rates, Panel data.

JEL. F21, H25, C23.

Keywords


FDI; Tax Rates; Panel Data.

Full Text:


References


Appel, H. (2006). International imperatives and tax reform: lessons from postcommunist Europe, Comparative Politics, 39(1), 43-62. doi. 10.2307/20434020

Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models, Journal of Econometrics, 68(1), 29–51. doi. 10.1016/0304-4076(94)01642-D

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations, Review of Economic Studies, 58(2), 277–297. doi. 10.2307/2297968

Babatunde, S.A. (2012). The impact of tax incentives on foreign direct investment in the oil and gas sector in Nigeria, IOSR Journal of Business and Management, 6(1), 1-15. doi. 10.9790/487X-0610115

Baltagi, B.H. (2005). Econometric Analysis of Panel Data, Third Edition, Canada: John Wiley & Sons.

Bénassy-Quéré, A., Fontagné, L., & Lahrèche-Révil, A. (2005). How does FDI react to corporate taxation?, International Tax and Public Finance, 12(5), 583-603. doi: 10.1007/s10797-005-2652-4

Beyer, J. (2002). Please invest in our country-how successful were the tax incentives for foreign investment in transition countries?, Communist and Post-Communist Studies, 35(2), 191-211. doi. 10.1016/S0967-067X(02)00007-7

Buettner, T., & Ruf, M. (2005). Tax incentives and the location of fdi: evidence from a panel of german multinationals, Deutsche Bundesbank Economic Studies No. 17/2005. doi. 10.1007/s10797-006-8721-5

Cass, F. (2007). Attracting FDI to transition countries: the use of incentives and promotion agencies, Transnational Corporations, 16(2), 77-122.

Demirhan, E., & Masca M. (2008). Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis, Prague Economic Papers, 17(4), 356-369. doi. 10.18267/j.pep.337

Desai, M.A., Foley, C.F., & Hines J.R. (2004). Foreign direct investment in a world of multiple taxes, Journal of Public Economics, 88(12), 2727-2744. doi. 10.1016/j.jpubeco.2003.08.004

Doing, B. (2016). Paying taxes 2016: the global picture, World Bank Group, [Retrieved from].

Easson, A., & Zolt, E.M. (2002). Tax ıncentives, World Bank Institute, [Retrieved from].

Estrin, S., & Uvalic, M. (2013). Foreign direct investment into transition economies: are the balkans different?, LSE ‘Europe in Question’ Discussion Paper Series, No. 64/2013. doi. 10.2139/ssrn.2293100

Fletcher, K. (2002). Tax incentives in cambodia, lao pdr, and vietnam”, IMF Conference on Foreign Direct Investment: Opportunities and Challenges for Cambodia, Lao PDR and Vietnam, Hanoi, August 16-17.

Gastanaga, V.M., Nugent, J.B., & Pashamova, B. (1998). Host country reforms and fdi inflows: how much difference do they make?, World Development, 26(7), 1299-1314. doi. 10.1016/S0305-750X(98)00049-7

Hall, R.E. & Jorgenson, D.W. (1967). Tax policy and investment behavior, The American Economic Review, 57(3), 391-414.

Hassett, K.A. & Metcalf, G.E. (1999). Investment with uncertain tax policy: random tax policy discourage investment, The Economic Journal, 109(457), 372-393. doi. 10.1111/1468-0297.00453

Heritage Foundation, (2016), 2016 Index of Economic Freedom, [Retrieved from].

Hines, J.R. (1996). Altered states: taxes and the location of foreign direct investment in america, The American Economic Review, 86(5), 1076-1094.

Holland, D., & Vann, R.J. (1998). Income tax incentives for investment, V. Thuronyi, (Ed.), Tax Law Design and Drafting (Volume-2), Washington D.C.: International Monetary Fund, 986-1020.

Imeri, V. (2013). The comparison of the tax rates between the republic of Kosovo with countries in region and the european union countries, European Scientific Journal, 9(7), 349-362.

James, S. (2013). Tax and non-tax incentives and investments: evidence and policy implications, World Bank Investment Climate Advisory Services Research Paper. doi. 10.2139/ssrn.2401905

Johnson, L., Toledano, P., Strauss, I., & James, S. (2013). Investment incentives: the good, the bad and the ugly, Eighth Columbia International Investment Conference Draft Paper, Columbia University, November 13-14. doi. 10.7916/D87D2S3Z

Kargı, B. (2014a). Portfolio in Turkish economy, and a long termed relation between foreign direct investments and the growth, and the structural breakage analysis (1980-2012), Journal of Academic Research in Economics. 6(1), 70-81.

Kargı, B. (2014b). Time series analysis about the relationship between foreign trade and exchange rate in Turkish economy, Timisoara Journal of Economics and Business, 7(2), 123-133. doi. 10.1515/tjeb-2015-0007

Kersan, Š.I. (2015). The importance of corporate taxation for fdi attractiveness of southeast european countries, Panoeconomicus, 62(1), 105-122. doi. 10.2298/PAN1501105K

Klemm, A., & Van P.S. (2009). Empirical evidence on the effects of tax incentives, IMF Working Paper No. 09/136.

KPMG, (2016), Tax rates online, [Retrieved from].

Martinez, V.J., & McNab, R.M. (1999). Tax systems in transition economies, W.B. Hildreth, & J.A. Richardson, (Eds.), Handbook on Taxation, New York: Marcel Dekker, pp.911-963.

Miller, A., Webster, A., & Yanti, E. (2013). The effects of indirect taxes on the industrial composition of us inward fdi, Bournemouth University Research Papers.

Mitra, P., & Stern, N. (2002). Tax systems in transition, World Bank, doi. 10.1596/1813-9450-2947

Morisset, J., & Pirnia, N. (2000). How tax policy and incentives affect foreign direct investment, The World Bank and International Finance Corporation Foreign Investment Advisory Service Policy Research Working Paper No. 2509. doi. 10.1596/1813-9450-2509

OECD, (2003), Checklist for foreign direct investment incentive policies, Paris: OECD.

OECD, (2010), Investment reform index 2010: monitoring policies and institutions for direct investment in South-East Europe, Paris: OECD.

Pasquali, V. (2015). Percentage of public deficit/surplus in gdp around the world, [Retrieved from].

Pomerleau, K. (2014). Corporate income tax rates around the world, 2014, [Retrieved from].

Popescu, G.H. (2014). FDI and economic growth in central and eastern europe, Sustainability, 6(11), 8149-8163. doi. 10.3390/su6118149

Serin, V., & Çalışkan, A. (2010). Economic liberalization policies and foreign direct investment in Southeastern Europe, Journal of Economic and Social Research, 12(2), 81-100.

Shala, N. (2013). Tax competition for fdi in western Balkans, [Retrieved from].

Šimović, H. & Žaja, M.M. (2010). Tax incentives in western Balkan countries, International Journal of Social, Behavioral, Educational, Economic, Business and Industrial Engineering, 4(6), 731-736.

Slemrod, J. (1990). Tax effects on foreign direct investment in the United States: evidence from a cross-country comparison, R. Assaf, & J. Slemrod, (Eds.), Taxation in the Global Economy, Chicago: University of Chicago Press, 79-122.

Tuomi, K. (2011). The role of the investment climate and tax incentives in the foreign direct investment decision: evidence from South Africa, Journal of African Business, 12(1), 133-147. doi. 10.1080/15228916.2011.555279

UNCTAD, (2000), Tax incentives and foreign direct investment: a global survey, ASIT Advisory Studies No. 16.

UNCTAD, (2004), Incentives, Geneva: United Nations.

UNCTAD, (2009), World Investment Prospects Survey (2009-2011), Geneva: United Nations.

UNCTAD, (2015a), Foreign Direct Investment: Inward and Outward Flows and Stock, [Retrieved from].

UNCTAD, (2015b), World investment report 2015, Geneva: United Nations.

van Parys, S., & James, S. (2010). The effectiveness of tax incentives in attracting investment: panel data evidence from the cfa franc zone, International Tax and Public Finance, 17(4), 400-429. doi. 10.1007/s10797-010-9140-1

World Bank, (2016), World Bank Open Data, [Retrieved from].

World Economic Forum, (2015), The Global Competitiveness Report 2015–2016, Geneva: WEF.




DOI: http://dx.doi.org/10.1453/ter.v3i4.1128

Refbacks

  • There are currently no refbacks.




.......................................................................................................................................................................................................................................................................................................................................

Turkish Economic Review - Turk. Econ. Rev. - TER - www.kspjournals.org

ISSN: 2149-0414. Editor : editor-ter@kspjournals.org   Secretarial: secretarial@kspjournals.com   Istanbul - Turkey.

Copyright © KSP Journals