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The Effect Of Corporate Tax Policy On Foreign Direct Investment: Empirical Evidence From Asian Countries

Author

Listed:
  • Adi Lesmana

    (Indonesia’s National Government Internal Auditor)

  • Widyono Soetjipto

    (Universitas Indonesia)

Abstract

The phenomenon of Corporate Tax Rate (CTR) reduction to attract Foreign Direct Investment (FDI) has been an interesting subject given the lack of consensus from empirical studies. This study aims to provide empirical evidence on the relationship between CTR and FDI, and examine factors that influence FDI inflows. Using data for 28 Asian countries from 1999 to 2014, we find that CTR has a significant negative effect on FDI inflows. FDI inflows increase by 4.38% due to a 1% CTR reduction. We also find that other economic factors, such as economic openness, market size, and exchange rates play an important role in attracting FDI inflows.

Suggested Citation

  • Adi Lesmana & Widyono Soetjipto, 2022. "The Effect Of Corporate Tax Policy On Foreign Direct Investment: Empirical Evidence From Asian Countries," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(4), pages 647-672, January.
    • Handle: RePEc:idn:journl:v:25:y:2022:i:4f:p:647-672
    DOI: https://doi.org/10.21098/bemp.v25i4.1729
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    More about this item

    Keywords

    Foreign direct investment; Corporate tax rates; Fixed effect model; System GMM;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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