Can Tax Regulation and Administration Practices Impact Foreign Direct Investments?

We examine the impacts of the indicators contributing to the effectiveness of tax regulation performances described by the topic of Paying Taxes in Doing Business report on the foreign direct investment inflows. We further focus on the effects the same determinants have on two different modes of FDI: greenfield FDI and cross-border mergers and acquisitions (M&As). This study uses panel data of one hundred fifty-six countries across all regions. The methodology applies random effects econometric tool to conduct a global investigation on the relation between the level of tax regulation and administration performances and the types of FDI, with further more focalized extraction of information applied to seventeen geographic regions. The main findings suggest that while the high degree model does not detect strong significant relations between factors of tax administration and types of FDI; however, a more scrupulous analysis by regions reveals strong correlations between effective tax regulations and levels of foreign direct investment flows to host economies. Additionally, the study suggests that differentiated factors of tax administration and regulation tools should be considered due to the regional affiliation of a potential host economy to drive foreign investments. The results of the study can be used as a guidance for country administrators in assessment of those specific determinants that could lead to improvement of targeted types of FDI in their specific country as part of a given region. Also, the investors may find the results useful for the evaluation of tax regulations and administration performances in potential host countries in terms of targeted investments