“Please invest in our country”—how successful were the tax incentives for foreign investment in transition countries?

Abstract

Because of the scarcity of capital the attraction of FDI became an objective which was followed with topmost priority in many post-socialist countries. But how effective were the introduced incentives? The comparative analysis shows that in spite of the advantageous effects of FDI on the transition process, the introduction of tax concessions appears to be of little value. No significant relationship between tax incentives and the level of FDI could be found. This, however, does not mean that the development of FDI was detached from political control. The way in which privatization took place had a big impact and a comparatively low general level of taxes influenced investments positively. Beyond this the general success of transformation was of importance for the attractiveness of a country.