Klimat inwestycyjny a wpływ opodatkowania przedsiębiorstw… na bezpośrednie inwestycje zagraniczne w krajach Unii Europejskiej
Investment Climate and the Effect of Corporate Taxation on Foreign Direct Investments in the EU Countries

Summary/Abstract: The author tries to assess the impact of the differences in the corporate tax rates among the EU countries on the localization of FDI, depending on the investment climate existing in the host country. One can assume that the sensitivity of foreign investment flows to tax differentials would increase with the improvement of investment climate in the given country. The research has been made using an augmented form of the gravity model on the sample covering all the EU-27 countries in the years 1998-2011. The results of the analysis indicate that the effect of tax differentials on the size of FDI flows tends to gain strength with the increase (improvement) of the variables representing the components of the investment climate. However, the negative effect of lowering the tax rate in the host country, relative to the donor country, become visible and statistically significant only after the indicators of the investment climate assume a certain positive level. This suggests that reducing the tax rates may appear ineffective in attracting FDI if investment climate in the given country is unfavourable. This conclusion may be important for economic policy. According to it, countries with poor investment climate should concentrate on its improvement rather than futile attempts to attract foreign investors by tax reductions, as a compensation for the other less favourable investment conditions.

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