This article examines the relative tax burden of transition economies from a microeconomic perspective. It employs data from the Tax Misery Index and the Index of Economic Freedom to compare the tax burden of transition economies to that of more developed market economies. It then creates a hybrid index, which provides a more representative look at relative tax burdens from an investor's perspective.
There
are pros and cons of investing in a transition economy. On one hand,
profit opportunities could be more attractive. But on the other hand, infrastructure
is less developed and corruption could be rampant. Financial transparency and
corporate governance also may not be as attractive as in more developed economies.
International investors have to weigh these pros and cons when deciding
where to invest.
One
of the primary factors that international investors consider is public finance.
If the government takes most of the profits the profitablility of an investment
would be of little relevance. What matters in the final analysis is how much is
left after the taxes have been paid.
Most
studies of taxation and public finance in transition economies take a macro approach.
They look at factors like government expenditures or taxes as a percentage of
Gross Domestic Product (GDP) or some other macro variables. One problem with this
approach_especially in transition economies_is that the statistics may not be
accurate, for a number of reasons. Because transition economies often have a large
unrecorded sector (unofficial economy), it is not possible to know the actual
GDP. |
