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Corporate Income Tax Rate and Foreign Direct Investment: A Cross-Country Empirical Study

Author

Listed:
  • Amalia Indah Sujarwati

    (Economics Graduate School, Universitas Indonesia and Ministry of Finance, Republic of Indonesia)

  • Riatu Mariatul Qibthiyyah

    (Economics Department, Universitas Indonesia)

Abstract

This study aims to explore the impact of Corporate Income Tax Rate (CITR) on Foreign Direct Investment (FDI), specified based on income levels of countries. Using an unbalanced fixed-effect method of 112 countries over the period of 2003–2017, our finding shows that CITR has no significant impact on FDI. Corporate Income Tax (CIT) is levied on all firms, and as CIT is generally more complex than other types of taxes, its influences on FDI are in question. Excluding tax havens from the sample, our findings show that CITR has a weak significance only in the lower-middle-income and low-income countries.

Suggested Citation

  • Amalia Indah Sujarwati & Riatu Mariatul Qibthiyyah, 2020. "Corporate Income Tax Rate and Foreign Direct Investment: A Cross-Country Empirical Study," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 66, pages 25-46, Juni.
    • Handle: RePEc:lpe:efijnl:202003
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    More about this item

    Keywords

    Corporate Income Tax Rate (CITR); Foreign Direct Investment (FDI); the user cost of capital;
    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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