Legal

Democratic Accountability And The Relative Obstacles To Foreign Investment

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Executive Summary

This paper considers the relationship between democratic accountability in developing countries and the policies they use to attract Foreign Direct Investment (FDI). The authors isolate two policy areas that governments of developing countries use to attract FDI: the tax burden on firms and the regulatory standards within which they operate. Countries that maintain high business taxes can only attract FDI by offering a less regulated business environment, which may have associated political costs. The extent to which democratic accountability constrains leaders in their tax/regulatory policy choices is the main line of analysis.

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