F2013: Linking Infrastructure and Taxes as Determinants of Multinational Activity: An Empirical Study of Foreign Direct Investment in Central and Eastern European Countries


Type Research Project

Funding Bodies
  • Austrian Science Fund

Duration Jan. 1, 2008 - Dec. 31, 2010

http://www.sfb-itc.at/
  • Research Institute for International Taxation FI (Details)

Tags

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  • Bellak, Christian (Details)
  • Leibrecht, Markus (Former researcher) Project Head
  • Riedl, Aleksandra (Former researcher)
 

Abstract (German)

The investment location decisions of Multinational Enterprises depend inter alia on a country’s level of the corporate income tax burden and its endowment with production-related infrastructure. Both factors might have an effect on the profitability of an investment, high corporate income taxes should have a negative and a favorable infrastructure endowment a positive impact. As corporate income taxes and production-related infrastructure have opposing effects on Foreign Direct Investment, one might ask whether a favorable infrastructure endowment compensates a firm for relatively high taxes. In this case high corporate income taxes do not deter Foreign Direct Investment.

The aim of the project is to test the hypothesis that the tax-rate sensitivity of Foreign Direct Investment decreases with an increase in a country’s infrastructure endowment.

To empirically test this hypothesis, appropriate measures for production-related (tangible) infrastructure and for the (effective) corporate income tax burden are used in a panel econometric analysis, based on a gravity-model-framework.

We expect that both, corporate income taxes and production-related infrastructure are economically and statistically significant determinants of Foreign Direct Investment. Moreover, we expect that accounting for production-related infrastructure as a determinant of Foreign Direct Investment indeed leads to a reduced tax-rate sensitivity of Foreign Direct Investment.

Such results should have consequences for the type, the speed and the degree of tax coordination and harmonization in the European Union which is needed to battle negative effects of tax competition for Foreign Direct Investment.


Abstract (English)

The investment location decisions of Multinational Enterprises depend inter alia on a country’s level of the corporate income tax burden and its endowment with production-related infrastructure. Both factors might have an effect on the profitability of an investment, high corporate income taxes should have a negative and a favorable infrastructure endowment a positive impact. As corporate income taxes and production-related infrastructure have opposing effects on Foreign Direct Investment, one might ask whether a favorable infrastructure endowment compensates a firm for relatively high taxes. In this case high corporate income taxes do not deter Foreign Direct Investment.

The aim of the project is to test the hypothesis that the tax-rate sensitivity of Foreign Direct Investment decreases with an increase in a country’s infrastructure endowment.

To empirically test this hypothesis, appropriate measures for production-related (tangible) infrastructure and for the (effective) corporate income tax burden are used in a panel econometric analysis, based on a gravity-model-framework.

We expect that both, corporate income taxes and production-related infrastructure are economically and statistically significant determinants of Foreign Direct Investment. Moreover, we expect that accounting for production-related infrastructure as a determinant of Foreign Direct Investment indeed leads to a reduced tax-rate sensitivity of Foreign Direct Investment.

Such results should have consequences for the type, the speed and the degree of tax coordination and harmonization in the European Union which is needed to battle negative effects of tax competition for Foreign Direct Investment.

Publications

Journal article

2012 Leibrecht, Markus, Scharler, Johann. 2012. Banks, Financial Markets and International Consumption Risk Sharing DOI: 10.1111/j.1468-0475.2011.0560.x. German Economic Review 13 (3): 331-351. (Details)
  Leibrecht, Markus, Hochgatterer, Claudia. 2012. Tax competition as a cause of falling corporate income tax rates: A survey of empirical literature. DOI: 10.1111/j.1467-6419.2010.00656.x. Journal of Economic Surveys 26 (4): 616-648. (Details)
2011 Leibrecht, Markus, Onaran, Özlem, Bösch, Valerie. 2011. How does globalisation affect the implicit tax rates on labour income, capital income and consumption in the EU? DOI: 10.1111/j.1465-7295.2011.00420.x. Economic Inquiry 50 (4): 880-904. (Details)
2010 Leibrecht, Markus, Scharler, Johann. 2010. Borrowing Constraints and International Risk Sharing: Evidence from Asymmetric Error-Correction, DOI: 10.1080/00036840903103692. Applied Economics 43 (17): 2177-2184. (Details)
  Leibrecht, Markus, Klien, Michael, Onaran, Özlem. 2010. Globalization, welfare regimes and social protection expenditures in Western and Eastern European countries, DOI: 10.1007/s11127-010-9685-7. Public Choice 148 (3): 569-594. (Details)
  Leibrecht, Markus, Bellak, Christian. 2010. Does Lowering Dividend Tax Rates Increase Dividends Repatriated? Evidence of Intra-firm Cross-border Dividend Repatriation Policies by German Multinational Enterprises. Finanz-Archiv 66 (4): 350-383. (Details)
  Leibrecht, Markus, Scharler, Johann. 2010. Government Size and International Consumption Risk Sharing. The Empirical Economics Letters 9 (1): 121-136. (Details)
  Leibrecht, Markus, Bellak, Christian, Stehrer, Robert. 2010. The role of public policy in closing foreign direct investment gaps: an empirical analysis. Empirica 37 (1): 19-46. (Details)
2009 Bellak, Christian, Leibrecht, Markus, Damijan, Joze. 2009. Infrastructure Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central and Eastern European Countries. World Economy 32 (2): 267-290. (Details)
  Leibrecht, Markus, Bellak, Christian. 2009. Improving infrastructure or lowering taxes to attract foreign direct investment?. Columbia FDI Perspectives: Perspectives on topical foreign direct investment issues by the Vale Columbia Center on Sustainable International Investment 2 (6): 1-5. (Details)
  Leibrecht, Markus, Bellak, Christian. 2009. Do low corporate income tax rates attract FDI? - Evidence from Central- and East European Countries. Applied Economics 41 (21): 2691-2703. (Details)
  Leibrecht, Markus, Scharler, Johann. 2009. How Important is Employment ProtectionLegislation for Foreign Direct Investment Flows in Central and EasternEuropean Countries?. Economics of Transition 17 (2): 175-195. (Details)
2008 Leibrecht, Markus, Scharler, Johann. 2008. Reconsidering Risk Sharing among OECD Countries: Some Evidence based on Panel Cointegration. Open Economies Review 19 (4): 493-505. (Details)

Chapter in edited volume

2012 Leibrecht, Markus, Liebensteiner, Mario. 2012. The transport and IT infrastructure in SEE countries. In: Doing Business in South-east Europe, Hrsg. Döring T. and Sternad D. 294-321. Houndmills, Basingstoke: Palgrave Macmillan. (Details)
2010 Leibrecht, Markus, Rixen, Thomas. 2010. Double Tax Avoidance and Tax Competition for Mobile Capital. In: Tax Coordination and Harmonization - Virtues and Pitfalls from an Interdisziplinary Perspective, Hrsg. Martin Zagler, 61-97. London, New York: Routledge. (Details)
2008 Leibrecht, Markus, Bellak, Christian. 2008. Taxes, Infrastructure and FDI in Central and Eastern European Countries,. In: Foreign Direct Investment, Economic Growth and Labour Market Performance: Empirical Evidence from New EU Countries, Hrsg. Birsan, M., G. Hunya and I. Siedschlag, 33-44. Cluj Napoca: Editura Fundatiei Pentru Studii Europene. (Details)
  Leibrecht, Markus, Imhof, Stefan. 2008. Globalisierung und die Besteuerung von Arbeits- und Kapitaleinkommen. In Organisation und Funktionen des Staates im Wandel - Festschrift für Gabriel Obermann, Hrsg. Kostal, T., Leibrecht, M. und Pasterniak, A., 53-74. Wien: Facultas. (Details)

Paper presented at an academic conference or symposium

2009 Leibrecht, Markus. 2009. Do dividend taxes determine the volume of repatriated dividends? Evidence from German multinational enterprises. AISSEC 2009, Perugia, Italien, 25.6-27.6.. (Details)
2007 Leibrecht, Markus. 2007. Infrastructure endowment and corporate income taxes as determinants of Foreign Direct Investment in Central and Eastern European Countries. European International Business Agency Conference 2007, Catania, Italien, 13.-15.12. . (Details)

Working/discussion paper, preprint

2010 Leibrecht, Markus, Riedl, Aleksandra. 2010. Taxes and infrastructure as determinants of Foreign Direct Investment in Central and Eastern European Countries revisited: New evidence from a spatially augmented gravity model. SFB International Tax Coordination Discussion Paper Nr. 42. (Details)
  Leibrecht, Markus, Onaran, Özlem, Bösch, Valerie. 2010. How does globalization affect the tax burden on labour income, capital income and consumption in different welfare regimes? The case of Western and Eastern EU Member States. SFB International Tax Coordination Discussion Paper Nr. 35. (Details)
2009 Leibrecht, Markus, Scharler, Johann. 2009. Government Size and International Consumption Risk Sharing. DEPARTMENT OF ECONOMICS JOHANNES KEPLER UNIVERSITY OF LINZ, Working Paper No. 0917. (Details)
  Leibrecht, Markus, Bellak, Christian. 2009. Does the impact of employment protection legislation on FDI differ by the low-skill intensity of sectors? An empirical investigation. The Leverhulme Centre for Research on Globalisation and Economic Policy Research Papers 21/2009. (Details)
  Leibrecht, Markus, Hochgatterer, Claudia. 2009. Tax competition as a cause of falling corporate income taxes. Discussion Papers SFB International Tax Coordination No. 32, WU Vienna. (Details)
  Leibrecht, Markus, Scharler, Johann. 2009. Banks, Financial Markets and International Consumption Risk Sharing. Vienna University of Economics and B.A. Department of Economics Working Paper Series. (Details)
  Klien, Michael, Leibrecht, Markus, Onaran, Özlem. 2009. Globalization and the Structure of Public Spending in the Western and Eastern EU Member States. Discussion Papers SFB International Tax Coordination. (Details)
2008 Leibrecht, Markus, Scharler, Johann. 2008. Borrowing Constraints and International Risk Sharing: Evidence from Asymmetric Error-Correction. Arbeitshefte und Forschungsberichte des Instituts für Finanzwissenschaft und öffentliche Wirtschaft der Wirtschaftsuniversität Wien. (Details)
  Leibrecht, Markus, Bellak, Christian, Stehrer, Robert. 2008. Policies to attract Foreign Direct Investment: An industry-level analysis . The Vienna Institute for International Economic Studies Working Paper Series . (Details)
2007 Leibrecht, Markus, Bellak, Christian, Damijan, Joze P.. 2007. Infrastructure endowment and corporate income taxes as determinants of Foreign Direct Investment in Central- and Eastern European Countries. LICOS Discussion Paper Series, Discussion Paper 193/2007, Katholieke Universiteit Leuven. (Details)
  Leibrecht, Markus, Imhof, Stefan, B.. 2007. Globalisierung und die Besteuerung von Arbeits- und Kapitaleinkommen. Arbeitshefte und Forschungsberichte des Instituts für Finanzwissenschaft und Öffentliche WirtschaftArbeitshefte und Forschungsberichte des Instituts für Finanzwissenschaft und Öffentliche Wirtschaft. (Details)
  Leibrecht, Markus, Scharler, Johann. 2007. How Important is Employment Protection Legislation for Foreign Direct Investment Flows in Central and Eastern European Countries?. DEPARTMENT OF ECONOMICS JOHANNES KEPLER UNIVERSITY OF LINZ, Working Paper No. 0716, October. (Details)

Research report, expert opinion

2007 Bellak, Christian, Leibrecht, Markus, Landesmann, Michael, Stehrer, Robert. 2007. Determinants of Inward FDI, Interim Report for FIW. Wien: FIW (Forschungsplattform Internationale Wirtschaft). (Details)

Habilitation

2009 Leibrecht, Markus. 2009. Fiscal Competition, Foreign Direct Investment and Economic Policy. Habilitationsschrift, Department of Economics. (Details)

Unpublished lecture

2008 Leibrecht, Markus. 2008. Infrastrukturausstattung und Körperschaftsteuern als Determinanten von Auslandsinvestitionen in Zentral- und Osteuropäischen Ländern. Wifo-Extern, Wien, 22.01. (Details)

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