Taxation and the Cost of Capital in Hungary and Poland: A Comparison with Selected European Countries

Abstract

The effective rates of taxation faced by a representative investor located in a major capital exporting country for investments in machinery and buildings in nine capital importing European countries are compared. Poland and Hungary are found to have relatively high effective tax rates on equity-financed investment. The analysis suggests that both countries would benefit from streamlining allowances for capital cost recovery and possibly lowering statutory corporate tax rates--as permitted by the revenue constraint--rather than providing tax preferences for foreign investors.