IMPACT OF INSTITUTIONAL FRAMEWORK AND TAX POLICY ON FOREIGN DIRECT INVESTMENT IN SELECTED EUROPEAN UNION COUNTRIES

Foreign direct investment represents the basis of economic growth of each country and affects the economic, technological and social environment and volume of trade more than any other type of capital. Accordingly, each country is trying to attract foreign direct investment and foreign capital. In order to achieve this, it is important that each country is politically stable, has a skilled and educated workforce with relatively low labor cost, a stable and administratively simple tax system. Institutional development and quality, i.e., a favorable institutional framework create an incentive environment for investment activity and have a key role in attracting foreign direct investment. Investment protection, business security, incentive tax policy, investor confidence in the legal order of the state, and security of ownership rights are the most important selection criteria that will determine the direction of the movement of foreign capital and determine the investment attractiveness of an individual country. The progress of the institutional environment and the favorable macroeconomic environment create good foundations for a profitable investment and, consequently, make the country more attractive to foreign investors. But, on the other hand, the increased inflow of foreign direct investment can further boost the process of institutional development. In this regard, the development of institutions and the growth of FDI are two processes that are simultaneously and interactively pursued, which are continuous and which, with their progress, lead to the growth and development of the society as a whole. This paper will try to analyze and explain the main effects of institutional framework and tax policy on foreign direct investments in selected EU countries. Mainly it will be focused to show the flow of the FDI in the countries and whether the changes in the institutional framework and tax policy have an impact on the FDI in selected EU countries.