The issues surrounding the fiscal effectiveness of investment incentives in the Czech Republic

Abstract

Investment incentives provide support for foreign direct investments and play an important role in the decision-making process of multinational corporations regarding the allocation of their investments. They are also priorities for countries with transitive or developed. Among central and eastern European countries, the Czech Republic has been one of the leading recipients of foreign direct investment since the late 90s, when the government amended the laws on investment incentives. The presence of foreign investments has eased access to foreign markets and has greatly influenced macroeconomic indicators. Investment incentives are provided in various forms: financial support for creating work places, subvention for costs related to employee retraining, or the amount of income tax relief and subvention for supporting the development of an industrial estate. These forms, whether alone or in combination, are supported from public funds. From the point of view of fiscal effectiveness they are national investments that should produce a rate of return and bring income, preferably sizeable, to the public coffers. State incomes are yields from various taxes, social and health insurance. The article deals with the measurement of the fiscal effectiveness of investment incentives under the conditions valid in the Czech Republic. A fiscal effectiveness model was created for this purpose, which was verified in cooperation with an existing business that received investment incentives from the Czech government. This project charts five years of business activities following the receipt of the investment incentives. Calculations are based in a real business and tax allowances over the period in question. The outputs include real outputs from taxes and other yields on the incoming side of the public accounts. The outcomes of the research project confirm that multinational enterprises bring high added value and that they are effective with a high rate of return.