Advertisement

Foreign Direct Investment and Tax Competition in Southeast Asia

  • Shinemay Chen
  • Jorge Martinez-Vazquez
  • Sally Wallace
Conference paper

Abstract

Foreign direct investment (FDI) is a unique form of international capital movement because it finances the construction of plant and equipment and also transfers technology and management skills from one country to another. Most developing countries use a variety of tax policies in an attempt to encourage investment and to Channel this investment into areas that are considered national priorities. The study of the impact of tax policy on FDI can have significant policy relevance. If FDI is not responsive to tax advantages offered by the host country, the foregone tax revenues represent a windfall loss that have to be made up by raising other, likely distortionary, taxes in the host country. If inward FDI is sensitive to the host country’s tax policies then policy design should attempt to strike a balance between foregone revenues and the benefits derived from capital technology and know-how transfers and future increases in tax base and revenues. Whether or not FDI is responsive to host country tax inducements also depends on the tax policies of home countries and may also depend on the tax policies of competing host countries.1 Therefore, the host country’s design of tax policy also has to take into account home country tax policies and may have to take into account the tax policies of competing host countries.

Keywords

Foreign Direct Investment Host Country Home Country Transfer Price Multinational Firm 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Agodo, Oriye. 1978. “The Determinants of U.S. Private Manufacturing Investments in Africa.ournal of International Business Studies 9(3): 95–107.CrossRefGoogle Scholar
  2. Asher, Mukul. 1990. Singapore’s Fiscal System in International Perspective. Paper presented at the Conference on the Fiscal System of Singapore.Google Scholar
  3. Asian Development Bank. 1991. Key Indicators of Developing Asia and Pacific Countries.Google Scholar
  4. Auerbach, Alan. 1995. “The Cost of Capital and Investment in Developing Countries.” In Fiscal Incentives for Investment and Innovation, Anwar Shah, ed. Oxford: Oxford University Press.Google Scholar
  5. Bartik, Timothy J. 1991. Who Benefits from State and Local Economic Development Policies. Kalamazoo, MI: Upjohn Institute for Employment Research.Google Scholar
  6. Boadway, Robin and Anwar Shah. 1995. “Perspectives on the Role of Investment Incentives in Developing Countries.” In Fiscal Incentives for Investment and Innovation, Anwar Shah, ed. Oxford: Oxford University Press.Google Scholar
  7. Caves, Richard E. 1982. Multinational Enterprise and Economic Analysis. Cambridge: Cambridge University Press.Google Scholar
  8. Chang, Ching-huei and Peter W. H. Cheng. 1993. “Tax Policy and Foreign Direct Investment in Taiwan.” In The Political Economy of Tax Reform, Takotoshi Ito and Anne O. Kruger, eds., pp. 315–38. Chicago: University of Chicago Press.Google Scholar
  9. Chia, Ngee Choon and John Whalley. 1995. “Patterns in Investment Tax Incentives Among Developing Countries.” In Fiscal Incentives for Investment and Innovation, Anwar Shah, ed. Oxford: Oxford University Press.Google Scholar
  10. Coopers &Lybrand. 1985. International Tax Summaries -1985: A Guide for Planning and Decisions. New York: John Wiley &Sons.Google Scholar
  11. 1990. International Tax Summaries-1990: A Guide for Planning and Decisions. New York: John Wiley &Sons.Google Scholar
  12. Culem, Claudy G. 1988. “The Locational Determinants of Direct Investment Among Industrialized Countries.” European Economic Review 32: 885–904.CrossRefGoogle Scholar
  13. Cummins, Jason G. and R. Glenn Hubbard. 1994. “The Tax Sensitivity of Foreign Direct Investment: Evidence From Firm-Level Panel Data. Working Paper No. 4703. National Bureau of Economic Research.Google Scholar
  14. Cushman, David O. 1985. “Real Exchange Rate Risk, Expectations and the Level of Direct Investment.” Review of Economics and Statistics (May): 297–308.Google Scholar
  15. Deloitte, Haskins and Sells. 1982a. Taxation in Singapore. New York: Haskins and Sells International Tax and Business Service.Google Scholar
  16. 1982b. Taxation in Taiwan. New York: Haskins and Sells International Tax and Business Service.Google Scholar
  17. 1984. Taxation in Malaysia. New York: Haskins and Sells International Tax and Business Service.Google Scholar
  18. 1985. Taxation in Hong Kong. New York: Haskins and Sells International Tax and Business Service.Google Scholar
  19. Diamond, Walter H. and Dorothy B. Diamond, eds. 1988. Tax Havens of the World. New York: Matthew Bender &Company, Inc.Google Scholar
  20. eds. 1996. International Tax Treaties of All Nations, Volume I-XVand Series B, Volume I-XXXVIII. Dobbs Ferry, New York: Oceana Publications Inc. Release 96–3.Google Scholar
  21. Dunning, John H. 1980. “Toward an Eclectic Theory of International Production: Some Empirical Tests.ournal of International Business Studies 11(1): 9–31.CrossRefGoogle Scholar
  22. 1981. International Production and the Multinational Enterprise. London: Allen and Unwin.Google Scholar
  23. 1992. Multinational Enterprises and the Global Economy. Wokingham, England: Addison-Wesley.Google Scholar
  24. Fan, Chuen-Mei. 1991. “An International Perspective on Tax Reform Strategies.” Australian Tax Forum 8: 539–49.Google Scholar
  25. Frost K.A. and Stein J.C. 1989. “Exchange Rates and Foreign Direct Investment: An Imperfect Capital Market Approach.” Working Paper Series No. 2914. New York: National Bureau of Economic Research.Google Scholar
  26. Gordon, R.H. 1990. Can Capital Income Taxes Survive in Open Economics?” NBER Working Paper No. 3416.CrossRefGoogle Scholar
  27. Green R.T. and W.H. Cunningham. 1975. “The Determinants of U.S. Foreign Investment: An Empirical Examination.” Management International Review 15: 113–20.Google Scholar
  28. Hall, Robert E. and Dale W. Jorgenson. 1967. “Tax Policy and Investment Behavior.” American Economic Review 57(3): 391–414.Google Scholar
  29. Hamada, K. 1966. “Strategic Aspects of Taxation Foreign Investment Income.” Quarterly Journal of Economics 80:361–75.CrossRefGoogle Scholar
  30. Hartman, David G. 1984. “Tax Policy and Foreign Direct Investment in the United States.” National Tax Journal (December): 475–87.Google Scholar
  31. 1985. “Tax Policy and Foreign Direct Investment.Journal of Public Economics 26: 107–21.CrossRefGoogle Scholar
  32. Ho, H.C.Y. 1994. “Effective Corporate Tax Rates on Capital Income in Hong Kong.” In Taxation and Economic Development Among Pacific Asian Countries, Richard A. Musgrave, Ching-Huei Chang, and John Riew, eds, pp. 140–55. Oxford: Westview Press.Google Scholar
  33. Hong Kong Government Industry Department. 1993. Survey of Overseas Investment in Hong Kong’s Manufacturing Industries. Hong Kong: Hong Kong Government Industry Department.Google Scholar
  34. Ihlanfeldt, Keith. 1994. “Tax Incentives for Economic Development in the State of Georgia.” Staff Paper No. 2. of Joint Study Commission on Revenue Structure, State of Georgia. Atlanta, GA: Policy Research Center, Georgia State University.Google Scholar
  35. Janeba, Eckhard. 1995. “Corporate Income Tax Competition, Double Taxation Treaties, and Foreign Direct Investment.Journal of Public Economies 56(2): 311–25.CrossRefGoogle Scholar
  36. Julius, DeAnne. 1990. Global Companies &Public Policy: The Growing Challenge of Foreign Direct Investment. New York: The Royal Institute of International Affairs.Google Scholar
  37. King, Mervyn A. and Don Fullerton. 1984. The Taxation of Income From Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and West Germany. Chicago: University of Chicago Press.Google Scholar
  38. Ladd, Helen. 1992. “Mimicking of Local Tax Burdens Among Neighboring Countries.” Public Finance Quarterly 20(4): 450–67.CrossRefGoogle Scholar
  39. Leechor, Chad and Jack Mintz. 1991. “Taxation of International Income by Capital-Exporting Countries: The Perspective of Thailand.” In Tax Policy in Developing Countries, Javad Khalizadeh-Shirazi and Anwar Shah. Washington, D.C.: World Bank.Google Scholar
  40. Lucas, Robert B. 1993. “On the Determinants of Direct Foreign Investment: Evidence from East and Southeast Asia.” World Development 21(3): 391–406.CrossRefGoogle Scholar
  41. Markusen, James R. 1991. “The Theory of the Multinational Enterprise: A Common Analytical Framework.” In Direct Foreign Investment in Asia’s Developing Economies and Structural Change in the Asia-Pacific Region, Eric D. Ramstella, ed. Boulder and Oxford: Westview Press.Google Scholar
  42. McCulloch, Rachel. 1993. New Perspectives on Foreign Direct Investment. In Foreign Direct Investment, Kenneth A. Froot, ed. Chicago: The University of Chicago Press.Google Scholar
  43. McKenzie, K.J. and J.M. Mintz. 1992. “Tax Effects on the Cost of Capital: A Canada-U.S. Comparison.” In Canada-U.S. Tax Comparisons, J. Shoven and J. Whalley, eds. Chicago: University of Chicago Press.Google Scholar
  44. Mendoza, Enrique, Assaf Razin and Linda Tesar. 1994. “Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption.” Working Paper No. 4864. Cambridge, MA: National Bureau of Economic Research.Google Scholar
  45. Mintz, Jack M. and Thomas Tsiopoulos. 1994. “The Effectiveness of Corporate Tax Incentives for Foreign Investment in the Presence of Tax Crediting.Journal of Public Economics 55: 233–55.CrossRefGoogle Scholar
  46. Mintz, J.M. and H. Tulkeus. 1990. “Strategic Use of Tax Rates and Credits in a Model of International Corporate Income Tax Competition.” CORE Discussion Paper No. 9073.Google Scholar
  47. Newlon, Timothy S. 1987. “Tax Policy and the Multinational Firm’s Financial Policy and Investment Decisions.” Ph.D. Dissertation, Princeton University.Google Scholar
  48. OECD. 1992. Revenue Statistics of OECD Member Countries. Paris: OCED.Google Scholar
  49. OECD. 1993. Promoting Foreign Direct Investment in Developing Countries. Paris: OCED.Google Scholar
  50. OECD. 1994. National Accounts: Detailed Tables, Volume II. Paris: OECD.Google Scholar
  51. Price Waterhouse. 1982a. Doing Business in Singapore. New York: Price Waterhouse.Google Scholar
  52. Price Waterhouse 1982b. Doing Business in Taiwan. New York: Price Waterhouse.Google Scholar
  53. Price Waterhouse 1994. Doing Business in Malaysia. New York: Price Waterhouse.Google Scholar
  54. Price Waterhouse. 1985. Doing Business in Hong Kong. New York: Price Waterhouse.Google Scholar
  55. Price Waterhouse 1995. Corporate Taxes: A Worldwide Summary. New York: Price Waterhouse.Google Scholar
  56. Ragazzi, Giorgio. 1973. “Theories of the Determinants of Direct Foreign Investment.” International Monetary Fund Staff Papers 20(2): 471–98.CrossRefGoogle Scholar
  57. Redel, James. 1975. “The Nature and Determinants of Export-Oriented Direct Foreign Investment in a Developing Country: A Case Study of Taiwan.” Weltwirtschaftliches Archiv 3(3): 505–28.CrossRefGoogle Scholar
  58. Roo, F.R. and A.A. Ahmed. 1979. “Empirical Determinants of Manufacturing Direct Foreign Investment in Developing Countries.” Economic Development and Cultural Change 27(4): 751–67.CrossRefGoogle Scholar
  59. Sanchez-Ugarte, Fernando. 1987. “Rationality of Income Tax Incentives.” In Supply-Side Tax Policy, Its Relevance to Developing Countries, Ved P. Gandhi, ed. Washington, D.C.: International Monetary Fund.Google Scholar
  60. Schive Chi. 1990. The Foreign Factor: The Multinational Corporation’s Contribution to the Economic Modernization of the Republic of China. Stanford, CA: Hoover Institution Press.Google Scholar
  61. Shah, Anwar and Joel Slemrod. 1990. “Tax Sensitivity of Foreign Direct Investment. Working Papers WPS 434. Washington, D.C.: The World Bank.Google Scholar
  62. 1991. “Taxation and Foreign Direct Investment.” In Tax Policy in Developing Countries, Javad Khalizadeh-Shirazi and Anwar Shah, eds. Washington D.C.: World Bank.Google Scholar
  63. Singapore Economic Development Board. Various Issues. Economic Development Board Yearbook. Singapore: Singapore Economic Development Board. Sinn, Hans-Werner. 1987. Capital Income Taxation and Resource Allocation. Amsterdam: North-Holland.Google Scholar
  64. Slemrod, Joel. 1990. “Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison. In Taxation in the Global Economy, Assaf Razin and Joel Slemrod, eds. Chicago: The University of Chicago Press.Google Scholar
  65. 1995. “Tax Policy Toward Foreign Direct Investment in Developing Countries in Light of Recent International Tax Changes.” In Fiscal Incentives for Investment and Innovation, Anwar Shah, ed. Oxford: Oxford University Press.Google Scholar
  66. Taiwan Council for Economic Planning and Development. 1992. Taiwan Statistical Data Book. Taiwan, Republic of China: Council for Economic Planning and Development.Google Scholar
  67. Taiwan Department of Statistics, Ministry of Finance. 1991. Yearbook of Financial Statistics of the Republic of China . Taiwan, Republic of China: Department of Statistics, Ministry of Finance.Google Scholar
  68. Taiwan Investment Commission, Ministry of Economic Affairs. 1991. Statistics on Overseas Chinese &Foreign Investment, Technical Cooperation, Outward Investment, and Outward Technical Cooperation. Taiwan, Republic of China: Investment Commission, Ministry of Economic Affairs.Google Scholar
  69. Tanzi,Vito. 1996. “Globalization, Tax Competition and the Future of Tax Systems.” IMF Working Paper No. 96/141. Washington D.C.: International Monetary Fund.Google Scholar
  70. Tsai, Pan-Long. 1991. “Determinantsof Foreign Direct Investment in Taiwan: An Alternative Approach with Time-Series Data.” World Development 19(2/3): 275–85.Google Scholar
  71. United Nations. 1993. National Accounts Statistics: Main Aggregates and Detailed Tables, 1991.Google Scholar
  72. United States Department of Labor, Bureau of Labor Statistics. 1989. Handbook of Labor Statistics.Google Scholar
  73. World Bank. 1991. World Tables. Baltimore: John Hopkins University Press.Google Scholar
  74. Wasylenko, Michael. 1996. “The Role of Fiscal Incentives in Economic Development. How Ohio Stands Relative to Its Neighbors.” In Taxation and Economic Development: A Blueprint for Tax Reform in Ohio. Roy Bahl, ed. Columbus, OH: Battelle Press.Google Scholar
  75. Young, Kan H. 1988. “The Effects of Taxes and Rates of Return on Foreign Direct Investment in the United States.” National Tax Journal 41(1): 109–21.Google Scholar

Copyright information

© Springer Japan 1998

Authors and Affiliations

  • Shinemay Chen
    • 1
  • Jorge Martinez-Vazquez
    • 2
  • Sally Wallace
    • 2
  1. 1.Department of Public FinanceNational Chengchi UniversityTaipeiTaiwan
  2. 2.Economics Department, School of Policy StudiesGeorgia State UniversityAtlantaUSA

Personalised recommendations