THE IMPACT OF TAX CUT ON FOREIGN DIRECT INVESTMENT: A CASE STUDY IN SOUTHEAST ASIAN COUNTRIES
DOI:
https://doi.org/10.31092/jia.v4i1.618Keywords:
Tax Cut, Foreign Direct Investment, Southeast AsiaAbstract
In this paper, we have examined the impact of tax cut on foreign direct investment (FDI) in Southeast Asian countries as a response to the debatable issue of the relationship between tax cut policy and FDI. We use corruption perception index and government effectiveness as the control variable, as well as other economic and demographic variables such as GDP growth, tax revenue, inflation, unemployment and population growth. Using Fixed Effect Model on panel data for a period of 1997-2016 adopted from World Bank, UNCTAD, and various websites, our findings suggest that in Southeast Asian countries, even though corporate tax cut policy gives a negative effect on FDI, this tax cut policy is not the main factor that induce investors. It is trade openness and GDP growth which become the reasons for investors to invest in this region. Moreover, the effect of government performance has played pivotal role in attracting FDI inflows.References
Abdioglu, N., Binis, M., & Arslan, M. (2016). The Effect of Corporate Tax Rate on Foreign Direct Investment: A Panel Study for OECD Countries. Ege Academic Review, 16(4), 599–610.
Auten, G., Carroll, R., & Gee, G. (2008). The 2001 and 2003 Tax Rate Reductions: An Overview and Estimate of the Taxable Income Response. National Tax Journal, 61(3), 345--364. https://doi.org/10.17310/ntj.2008.3.01
Boţa-Avram, C. (2013). Empirical Analysis of Effects of Country-level Governance to Strength of Investor Protection. Procedia - Social and Behavioral Sciences, 99(2012), 1063–1072. https://doi.org/10.1016/j.sbspro.2013.10.580
Botric, V., and Skuflic, L. (2006). Main Determinants of Foreign Direct Investment in the Southeast European Countries. Transition Studies Review, 13(2), 359–377. https://doi.org/10.1007/s11300-006-0110-3
Demirhan, E., & Masca, M. (2008). Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis. Prague Economic Papers, 17(4), 356–369. https://doi.org/10.18267/j.pep.337
Devereux, M. P., & Griffith, R. (2002). The impact of corporate taxation on the location of capital : A review. Swedish Economic Policy Review, 9, 79–102.
Djankov S., Ganser T., Mcliesh C., R. R. and S. A. (2009). The effect of corporate taxes on investment and entrepreneurship. National Bureau of Economic Research, 56(4), 113–124. https://doi.org/10.1257/mac.2.3.31
Edwards, S. (1990). Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries. NBER Workng Paper, (3497), 1–44. https://doi.org/10.3386/w3497
Egger, P., & Raff, H. (2015). Tax rate and tax base competition for foreign direct investment. International Tax and Public Finance, 22(5), 777–810. https://doi.org/10.1007/s10797-014-9305-4
Ferede, E., & Dahlby, B. (2012). the Impact of Tax Cuts on Economic Growth: Evidence From the Canadian Provinces. National Tax Journal, 65(3), 563–594. https://doi.org/10.17310/ntj.2012.3.03
Gropp, R., & Kosital, K. (2000). The Disappearing Tax Base: Is Foreign Direct Investment (FDI) Eroding Corporate Income Taxes. IMF Working Paper, (10), 38. Retrieved from http://www.imf.org/external/pubs/ft/wp/2000/wp00173.pdf
Kok, R., & Ersoy, B. A. (2009). Analyses of FDI determinants in developing countries. International Journal of Social Economics, 36(1/2), 105–123. https://doi.org/10.1108/03068290910921226
Kristjánsdóttir, H. (2005). Determinants of foreign direct investment in Iceland. University of Copenhagen. Retrieved from http://www.econ.ku.dk/cam/wp0910/wp0406/2005-15.pdf/
Morrissey, O., & Y. R. (1995). The GATT Agreement on Trade Related Investment Measures: Implications for Developing Countries and their Relationship with Transnational Corporations. Journal of Development Studies, 31(5), 702–724.
Nigh, D. (1985). The Effect of Political Events on United States Direct Foreign Investment: A Pooled Time-series Cross-sectional Analysis. Journal of International Business Studies, 16, 1–17. https://doi.org/10.3102/00346543067001043
Zidar, O. M. (2015). Tax Cuts For Whom? Heterogeneous Effects Of Income Tax Changes On Growth And Employment. National Bureau of Economic Research, (March), 1–53. https://doi.org/10.3386/w21035
Downloads
Published
Issue
Section
License
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a CC BY-SA Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
