Comparative Studies of Cross-border M&A and Greenfield Investments in Response to Changes in Tax Regulation and Administration of Host Economies

We study and compare the impact of tax indicators, described by Paying Taxes scores of Doing Business report, on two modes of FDI in equity capital- greenfield FDI and cross-border mergers and acquisitions (M&As). Then, we apply 25 percent improvement to each tax factor and evaluate this effect on inbound flow of FDI determinants. The study compares four methods-the ordinary least squares, random-effects, fixed-effects, and Hausman-Taylor models- applied to the panel data for one hundred sixty countries for the period from 2009 to 2017. The consummate range of Hausman-Taylor tools when applied to studies of panel datasets with time-varying, time-invariant and endogenous parameters of tax administration reveals the divergence among the factors appealing to M&A and greenfield investors. The study assesses the higher sensitivity of M&A to the factors of economic development, overall business friendliness and location of a potential host economy. The countries at the lower end of GDP per capita performance are more likely to attract foreign direct investments, if the message about the domestic reforms in tax regulations and administration targets greenfield investors

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

The Effects of Presumptive Methods of Taxation on Revenue Mobilization in the Value

Recent economic studies of presumptive taxation in the ECA region suggest negative effects of these tax modes on tax revenues mobilization. This study uses a three-stage methodology to estimate the effect of presumptive taxation on revenue mobilization for the VAT. First, we develop a new approach to estimate the true VAT potential tax base in an economy that includes presumptive taxation. Next, the paper assesses potential tax collections reflecting true taxable capacity and a tax effort index, suggesting the presence of inefficiencies in the tax system and sizable tax avoidance. Second, we use regression analysis to test for the scale of impact of presumptive taxation on VAT collections. Third, we use vector autoregression analysis (VAR) to analyze the bidirectional effect of VAT actual and potential collection and presumptive taxation modes in short and long-term perspective. For contrasting the variance of impact of presumptive taxation on VAT mobilization we use two different presumptive tax modes, simplified tax and presumptive payments, with different tax structures. We use data for Armenia for the numerical application of the analysis. Our findings reveal that, indeed, Armenia’s simplified tax has a significant distorting and diminishing effect on VAT collections. Meanwhile, presumptive payments have a positive impact on VAT mobilization

The Impact of Public Expenditures on Economic Growth in Two Very Different Countries: A comparative Analysis of Armenia and Spain

There is considerable controversy in the economic literature concerning whether particular government expenditures have an impact on economic growth. This study analyzes the macroeconomic magnitude of government expenditures in Armenia and Spain and evaluates whether there exists a causal relationship between government expenditures and economic growth and vice versa (Keynesian hypothesis and Wagner’s Law). The study employs VAR tests to analyze annual data for the years 1996-2014. Furthermore, by utilizing Granger causality tests, the study reveals whether the government expenditures are a significant factor in economic growth in short-term perspective. Finally, IRF and FEVD tests are applied to estimate the effect of a change in particular government expenditures on GDP for twelve year time horizon. This study validates the hypothesis that some public expenditures by the Armenian and Spanish public sectors positively contribute to the growth of their economies, while social protection is negatively related to GDP

The Poverty Implications of Alternative Tax Reforms: Some Countries Intuitive Results In An Application To Pakistan

This paper presents results from four simulations of the impact of potential tax reforms in Pakistan on poverty, shared prosperity, and inequality. The simulations are carried out in the context of a dynamic computational general equilibrium (CGE) model that incorporates endogenous evasion of the corporate income tax. The simulations are: a forward looking benchmark case, an increase in the corporate income tax from 35 to 45 percent, a rise in the General Sales Tax (GST) from 16 to 17 percent, and an increase in the tariff rate from 14 percent to 19 percent. The simulations link the CGE model to household survey data that is incorporated in a micro simulation model. This “top down” approach permits a disaggregated estimation of the poverty implications of alternative tax and tariff policies. The results indicate, counterintuitively, that the increase in the sales tax leads to milder average increases in poverty than an equal-yield corporate income tax, because the fall in capital investment resulting from the corporate tax increase lowers the marginal product of labor. The simulated tariff increase raises poverty slightly more than the sales tax increase and slightly less than the corporate tax increase. The difference in simulated poverty impacts is small, as the average headcount rate increases by half a percentage point more under the corporate income tax than the sales tax, confirming the limits of indirect taxation as a tool for redistributing income

Urban sprawl and local fiscal burden: analysing the Spanish case

Urban sprawl is rapidly occurring in many Spanish urban areas. The objective of this paper is to evaluate how the trend of building dispersion of new residential areas may be affecting the fiscal stability of local Spanish governments. The high variability of the characteristics of Spanish urban areas as well as the existence of very similar local fiscal structures made this case particularly interesting. A precise index of urban sprawl, calculated with geo-referenced digital cartography, was used. Utilising spatially desegregated information of taxes from the Spanish National Institute for Fiscal Studies allowed for a measure of fiscal burden by local areas and the ability to distinguish among types of taxes. Control variables were also available at the local level from the Spanish Census and other databases. Quantile Regressions methodology supplementing Ordinary Least Square regressions assessed the discrepancy in the results and in the conclusions of the studied distributions. The results indicate that higher levels of urban sprawl imply higher local fiscal burden. This is especially clear in the higher part of the local fiscal burden distribution. By tax categories, the phenomenon of urban sprawl particularly affects local indirect taxation. Based on these results, local decision-makers should consider that urban planning is also a fundamental tool to assure long-term local fiscal stability