Effects of Corporate Income Tax on Foreign Capital Investment—A Study of Income Taxes Consolidation
We exploit the 2008 China's Income Taxes Consolidation as a case study to examine the im-pact of income tax on foreign capital investment.We find that raising income tax significantly increases the probability of foreign divestment,which is more pronounced for enterprises that are cost-oriented,less-competitive,with false foreign investment,in highly competitive industries,and those from Hong Kong,Macao,Taiwan or countries without bilateral tax agreements.Profit Transfer by distorting trade price is found to be an effective means to cope with tax burden increase,and continuing tax incentives in Midwest China attracts inflow of foreign investment located in the East.
corporate income taxforeign capital investmentoffshore profit shifting
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