The current research done by Deloitte (2006) in the Czech Republic contains The Final report of evaluation of investments drawing incentives and the evaluation of the effectiveness of CzechInvest agency Ministry of Industry and Trade ordered an analysis to find out the situation and prospective of investment
7 Using of the advertisement increase the total costs and the price of the goods in the end.
If there had not been any advertisement, all products wathich before news, would had been cheaper. The problem is, that if one of the producers particular goods will not use any form of advertisement, while the all competitors so, its chance on the market will be very small.
Existency of selective investment incentives distors tax neutrality between many fields of enterprises in home market, on the other hand it straighten distortion in taxation in the international measure. Investment incentives symbolize an international problem, and therefore they are the subject of regulation from the side of World Trade Organisation.
Nevertheless in this field the short-sighted interests of particular countries are winning, as it is by liberalisation of trade with agriculture products and removing subventions related with them. In both cases there is a suboptimal solution so called prisoner´s dilemma. It has to be solved always if the government of a country tries to outflank over their neighbours or thinks that it understand the economy better.
Patria. ©2010. Investiční pobídky, spása, hřích, nebo nutné zlo? [online], [viewed 2012-10-12] Available from: http://www.patria.cz/zpravodajstvi/786348/investicni-pobidky-spasa-hrich-nebo-nutne-zlo.html?culture=cs-CZ
incentives. According to this report8 are investment incentives effective.
Evaluation of economic contribution from investment incentives including methodology of economic model prepared Deloitte company together with experts from CERGE-EI, University of Economics in Prague and Czech Statistical Office. This study analyses all investments from 1998 to 2008 which received decision about the receiving of investment incentives.
However Schwarz et col. (2007) carry out the Analysis of investment incentives in the Czech Republic. He discuss the 8 myths about investment incentives. From the Executive Summary are obvious the following points:
1) Investment incentives are directed to the regions with the highest GDP per inhabitant. (The capital city, Prague and the Central Bohemia region), thereby the difference between the most developed and the underdeveloped regions were not diminished but increased.
2) Investment incentives have not removed the differences in the unemployment rate, because the investment incentives were directed more likely to the regions with the lower unemployment rates. Moreover, the new work places with the investment incentives are poaching employees from other companies of the same sector or from other sectors, which does not decrease the unemployment rate.
3) The cost for creating a working place with investment incentives was approximately 1.6 mil CZK, but in the case of Barum Continental in Otrokovice, it reached 15 mil. CZK, which significantly exceeded the costs for creating new work places without investment incentives.
4) Unemployment has not been changed by investment incentives, because the new work places provide opportunities for domestic employees of the same sector or other sectors but also for foreign workers.
5) The importance of the spillover effect in relation to investment incentives is overestimated because they do not consider the real total costs of the investment incentives. The “spillover” does not concern only outputs but also costs, including fiscal costs, without which the investment incentives would not be practical.
6) Even though investment incentives create an impression that they decrease the tax burden in an economy, the opposite is true. Investment incentives are based on fiscal cost and help to keep high level of budgetary cost and amount of taxation. Therefore they complicate the way for decreasing of tax burden. Incentives provided to advantageous companies support the government in maintaining the current tax burden, not providing tax relief.
7) Consultants showing the beneficial influence of investment incentives do not calculate all the costs related to investment incentives. By the calculation of all costs, which include all tax yields (not realized) but
8 Available from: http://www.czechinvest.org/investicni-pobidky-vydelaly-230-miliard-ukazala-jedinecna-studie-deloitte
sacrificied in favour of the direct support of the incentives, there is unambiguous summary, that the fiscal yields do not surpass the total fiscal costs.
8) Investment incentives are deforming the market. They support the large, especially foreign companies, which receive market advantages at the expense of small and middle-sized companies, which are netto tax payers.
This deforms the economic structure in favour of large companies, which often grow to a size “too big to fail” which leads to special attention and support from the government.
The research provided by Schwarz is very critical to the Deloitte (2006) findings especially because of the direction of investment incentives to regions with the highest GDP. He claims that the unemployment rates has not been decreased because of investment incentives were directed to the regions with the lower rate of unemployment rates. It was pointed out that the new working place created by investment incentives pull the employees over from other existing companies. Deloite findings claim that investment incentives are effective however Schwarz (2007) is criticising them.
Šachrová (2006) focused on 14 companies in her dissertation and claim that investment incentives are effective.
Schwarz, Bartoň, Bolcha, Heřmanský, Mach (2007) expressed the idea that in the region of the central Europe, there is very strong tax competitiveness and countries are competing among each other by general tax rates and the rates and subventions and by investment incentives. They criticized the system of current investment incentives in the Czech Republic and the results of Deloitte analysis.
This research group doubted about positive influence of spillover effect.
According to NERV (2011), the Ministry of Industry and Trade of the Czech Republic is still counting with investment incentives in future.