Local budgets and foreign direct investment attraction: the EU experience

Abstract

The article is devoted to the analysis of the role of foreign direct investment in shaping local budget revenues in selected EU countries and to identify the most of effective instruments for their attraction at the municipal level. A comparative analysis of Germany, Poland, the Czech Republic, and France was conducted, drawing on EU and national regulatory frameworks as well as statistical data on investment projects across key cities and regions. The findings reveal that FDI does not directly contribute to local budgets but significantly expands the tax base through corporate income tax, land and property taxation, and employment-related revenues. Municipalities in the EU apply a wide range of tools, including tax incentives, special economic zones, industrial parks, and digital or innovation-based solutions to stimulate capital inflows. While large metropolitan areas such as Berlin, Paris, Prague, and Warsaw remain the primary hubs of foreign investment, smaller cities and peripheral regions increasingly benefit from decentralized investment policies. The European experience demonstrates a diversity of approaches — from Germany’s innovation clusters and Poland’s zonal development to the Czech Republic’s digital initiatives and France’s green strategies. A common feature is the proactive role of local authorities in shaping favorable conditions for investment, thereby strengthening regional competitiveness and fiscal autonomy. For Ukraine, relevant practices include municipal tax incentives, the establishment of industrial and technology parks, and the creation of supportive institutional frameworks for investors. Future research should focus on the long-term impact of FDI on local budget revenues, as well as on regional fiscal sustainability and spatial divergence.