The Impact of Tax Rates on Attracting Foreign Direct Investment and Economic Growth: The Case of Kosovo

Abstract

Theoretically it is claimed that a reasonable tax burden can stimulate economic growth, or conversely, an excessive tax burden can slow down economic growth. Taxes should be more than just a source of revenue for the functioning of the state, as they enable public authorities to actively contribute to pursuing the goals of economic, social and environmental policies. This study aims to analyse the impact of the tax burden on attracting FDI and economic growth in Kosovo. The paper will test the findings from the comparative analysis method by determining the impact of the tax burden on attracting FDI and stimulating economic growth. The results showed that Kosovo's level of effectiveness is lower than other countries in the region in terms of applying fiscal policies to attract FDI and stimulate economic growth. In this aspect there are some factors which have a negative impact. For a sustainable economic development and for the absorption of FDI it is not enough just to have low tax rates. Responsible institutions need to improve contract enforcement conditions, reduce unnecessary administrative barriers, promote the fight against the informal economy, corruption, nepotism, etc.