TAX HELL INDEX AS A TOOL FOR ASSESSING THE IMPACT OF TAX POLICY ON FOREIGN DIRECT INVESTMENT

Abstract

Globalization has significantly influenced the flows of foreign direct investment (FDI), promoting their growth and diversification. The competition among governments to attract foreign investment has become a crucial aspect of international economic policy. Among the traditional determinants of FDI, a favorable tax policy is an important factor affecting the choices of foreign investors. The main instruments of fiscal policy include government revenues (tax receipts) and government expenditures. Effective fiscal policy significantly impacts the volume of attracted FDI. Studying the impact of tax policy on FDI is relevant for several key reasons: 1) Tax policy directly affects investors' decisions on capital placement, which, in turn, impacts economic growth; 2) Researching tax policy is important for understanding how countries can enhance their competitiveness; 3) Tax policy should not only promote investment attraction but also ensure sufficient tax revenues to finance government expenditures; 4) Studying the impact of tax policy on FDI allows countries to adapt to new global challenges and maintain competitive advantages; 5) The results of research help governments develop and implement tax reforms that maximize the attraction of FDI. Evaluating the impact of tax policy on FDI is a complex task and involves the use of various methods and approaches. In our study, we applied the method of systematic literature review, decomposition method, correlation analysis, comparative method, and graphical methods. The results of the decomposition of the Tax Hell Index indicate an inverse relationship between its two components: the fiscal component and the «quality of governance» component. This means that a high level of fiscal pressure does not always correspond to low governance quality indicators and vice versa. The results of the correlation analysis, which was used to assess the strength of the relationship between the fiscal component and the volume of FDI, revealed a weak inverse relationship between the examined indicators. Thus, we can conclude that this index does not fully characterize the effectiveness of tax policy in the context of attracting FDI, and therefore, it is advisable to use multifactor regression models for further research.