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Effects of home country tax reform on FDI inflows to South Korea: A synthetic control method approach

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  • Yang, JinHyuk
  • Kang, Youngho

Abstract

To encourage the repatriation of foreign subsidiaries’ profits, Japan and the UK switched from a worldwide tax system to a territorial one in 2009. These home country tax reforms could cause the unintended result of allowing multinational corporations (MNCs) to invest more in low-tax countries due to the possibility of profit shifting. Using the dataset of South Korea and the synthetic control method, we find that the transition to a territorial tax system causes Japan, a country with a relatively high corporate tax, to increase its investment in South Korea.

Suggested Citation

  • Yang, JinHyuk & Kang, Youngho, 2023. "Effects of home country tax reform on FDI inflows to South Korea: A synthetic control method approach," Economics Letters, Elsevier, vol. 225(C).
    • Handle: RePEc:eee:ecolet:v:225:y:2023:i:c:s0165176523000769
    DOI: 10.1016/j.econlet.2023.111051
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    References listed on IDEAS

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    More about this item

    Keywords

    FDI; Worldwide tax system; Territorial tax system; Synthetic control method;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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