THE IMPACT OF FISCAL DETERMINANTS ON INVESTMENTS IN EUROPEAN UNION COUNTRIES.  A PANEL DATA ANALYSIS

Monica-Violeta Achim,Eugenia Ramona Mara,Sandra Clement

doi:10.17818/diem/2021/1.1

Abstract

Taxation plays an important role in investment decisions and on net profit. In this view, this paper examines the fiscal determinants of investments realized by non-financial corporations in European Union (EU) countries. More exactly, the influences of profit tax and other important taxes like consumption and labor tax on the rate of investment are analysed. For this purpose, we use a panel analysis for 28 Member States from 2008 to 2018. In the presence of variables cointegration, we apply the fully modified ordinary least square (FMOLS) for investigating the long-run impact of taxation. Our results show a negative influence of the profit tax and a positive influence of consumption tax on the investment expansion. In addition, we find that the profit tax rate decreased after 2008 representing one of the most important fiscal measure adopted by the majority of EU Member States in order to stimulate the investment increase. The results are important for the governments, corporate governance of the companies and the investors, in order to understand the efficiency of their decisions to recover after a crisis. Keywords: Corporate tax policy, Rate of investment, Panel data.

Highlights

The prosperity of a country determines the degree to provide individuals, society, companies and government with goods and services
We find that the profit tax rate decreased after 2008 representing one of the most important fiscal measure adopted by the majority of European Union (EU) Member States in order to stimulate the investment increase
As it has been shown that for the EU28, as well as for the EU13, there is a positive relationship between domestic investment and corporate taxation

Summary

Introduction

The prosperity of a country determines the degree to provide individuals, society, companies and government with goods and services. Prosperity depends on various influencing factors, such as the political, social, and the economic situation. In the context of the economic situation, domestic investment plays a major role. If companies invest their net profits in equipment and goods in their home country, prosperity increases and with it real wages, labor volumes, state budget and technological progress. The decision of a company to invest its profits domestically can DIEM (1) 2021 be influenced by different factors. The level of tax burden and associated taxation may help companies to develop. The level of fiscal revenues are the most important source of financing the public expenditure (Mara et al 2009)

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