Coordination vs. Competitiveness of Effective Average Tax Rates in Relation to FDI: The Case of Emerging EU Economies

Due to the single market within European Union (EU), capital mobility has created many challenges in field of tax policy, especially whether taxes should be coordinated or governments retain fiscal sovereignty for sake competitiveness. In order attract foreign direct investment (FDI), emerging EU economies most often choose policy reduction and particularly lowering effective average rates (EATR). The purpose this paper is empirically assess impact changes EATR on decision localize FDI period 1998–2021, framework cross-sectional dependent, non-stationary, heterogeneous panels. Using (Pooled) Mean Group estimator, long-run relationship between revealed. error-correction parameters are significant heterogeneous, showing that speed adjustments towards equilibrium different, but highest Estonia. Accession contributed faster majority economies, while a broader set potential determinants localization taken into consideration estimated using Panel-corrected standard error method. Results showed de facto competitiveness group instead jure coordination EU.