Fiscal Policy and Foreign Direct Investment: Evidence from some Emerging EU Economies

The movement of capital inside and outside the boundaries of a country gets significant attention of the policy makers and researchers in both developing and developed countries. Based on the fiscal theories derived from the economic works mentioned in the present working paper, we intend to argue that far from being a factor with small influence, as shown in literature, fiscal policy is a major factor influencing Foreign Direct Investment. Using a pooled dataset consisting of annual observations over the period 2000-2010 for 6 actual European Union countries considered "Emerging European Economies" i.e. Bulgaria, Hungary,Latvia, Lithuania, Poland and Romania, we find strong support for our conjecture which states fiscal policies are determinants for FDI. Our results suggest that fiscal competition between governments for FDI is not necessarily a corporate tax rates competition, but a business environment one, which is determined primarily by fiscal policy. Being focused on empirical, contextualized analysis, this study highlights the overall empirical relationship between FDI and Fiscal Policy, offering conjectures as to the reasons behind this relationship. (C) 2012 Published by Elsevier Ltd. Selection and/or peer-review under responsibility of The 8th International Strategic Management Conference