An Empirical Study Of The Impact Of International Tax Competition On Capital Inflows In Developing Countries

With the international tax competition becoming increasingly fierce,global economic governance is undergoing a profound and continuous transformation.Total tax burden levels,business environment,tax havens and national income gaps have become hot topics.Countries are paying close attention to the dynamics of international tax field and actively applying various policies to attracting international capital,especially the foreign direct investment.As the opening up of China’s capital market becomes deeper and deeper,it is of great significance to study international tax competition for China to accurately grasp the trend of international tax competition,formulate effective taxation and investment policies,and improve the modernization level of state governance.This paper analyzes the impact of international tax competition on the attraction of foreign direct investment in developing countries through literature analysis and empirical analysis.After generalizing a large number of domestic and foreign literatures,the main consensus of domestic and foreign research may go as follows: international tax competition leads to a decline in tax rates,countries pay attention to tax sovereignty,countries should promote information sharing,establish supranational institutions to meet challenges and national heterogeneity factor has an important impact on foreign direct investment.The controversies are listed as bellow: whether the formula allocation is effective in solving the transfer pricing problem of affiliated companies,whether the international tax competition has more advantages than disadvantages,whether the tax havens are harmful to global tax governance,whether countries are willing to actively participate in tax cooperation,and whether large countries can benefit from tax competition.In order to explore the causal relationships among the total tax burden,the business environment and the national heterogeneity on the capital inflows of developing countries,this paper introduces high-income countries and tax havens as comparisons,building a balanced panel which includes total tax burden,ease of doing business index and foreign direct investment etc.from 50 countries between 2007 and 2017,these countries including tax haven countries,high-income countries and low-and middle-income countries.After the empirical analysis and the robustness test,the following conclusions can be drawn: the effect of total tax burden on foreign direct investment can be expressed as a “inverted U-shaped” curve,when the total tax burden of a country is at a low level,the higher the total tax burden of a country,the greater the inflow of foreign direct investment;the effect of both the ease of doing business index and the dependence degree of trade on foreign direct investment is negatively correlated.The greater the ease of doing business index of a country,the smaller the amount of foreign direct investment absorbed by the country;the higher the sum of exports and imports of goods and services measured as a share of GDP,the smaller the amount of foreign direct investment absorbed by the country;when a country is recognized as a tax haven,it is not conducive to the country’s inflow of foreign direct investment;for tax havens,the increase in the total tax burden will decrease the foreign direct investment inflows;when a country is identified as a high-income country,it is beneficial for the country to attract foreign direct investment;whether a country is a high-income country does not affect the total tax burden to attract foreign direct investment inflows;environmental differences make the total tax burden inhibit foreign direct investment inflows;foreign direct investment is more sensitive to the total tax burden of low-and middle-income countries than that in the high-income countries.The main recommendations of this paper list below: maintaining a moderate level of tax burden,avoiding being identified as tax havens,establishing a transparent and stable institutional environment,raising the national fiscal revenue level,optimizing tax business environment,improving tax governance,signing multilateral tax treaties,striving for cooperation from international organizations initiatively,promoting cooperation in tax collection management field.The creative achievements of this paper mainly include: compared with the existing literature which using the statutory tax rate or effective tax rate,it is more realistic to study the impact of the total tax burden which includes all kinds of taxes and fees on the inflow of foreign direct investment in a certain country;quantifying the business environment,combined with the total tax burden to analyze its causal relationship to the foreign direct investment inflows;distinguishing between high-income countries and low-and middle-income countries,tax havens and non-tax havens,making the recommendations for developing countries much targeted.