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Tax Policy and Foreign Direct Investment: A Regime Change Analysis

Author

Listed:
  • Onome Christopher Edo

    (Department of Accounting, University of Benin, Nigeria.)

  • Anthony Okafor, PhD

    (Department of Finance, University of Louisville, Kentucky)

  • Akhigbodemhe Emmanuel Justice

    (Department of Economics, University of Benin, Nigeria)

Abstract

Objective - Tax policies play significant role in the direction of foreign direct investments. We investigate the proposition that tax policies enacted by military and democratic regimes differ on the influence the foreign direct investments. Methodology � Our hypotheses are tested using the error correction model as we compare the impact of tax policies on flow foreign direct investments in Nigeria between two dispensations: military rule from 1983 to 1999 and democratic rule from 1999 to 2017. Panel data between 1983 and 2017 were obtained from the databases of the World Bank, Central Bank of Nigeria and the Federal Inland Revenue Services. The explanatory variables include company income tax, value added tax, tertiary education tax and customs and exercise duties. Findings � The study reveals that tax variables during the military regime exerted more explanatory power of 79% compared to the civilian administration of 66% with respect to the impact of corporate taxes on FDI. The effect of company income tax on FDI was more pronounced during the military regime than in the civilian regime. FDI had a higher degree of convergence during the military regime compared to civilian rule, and this is vital for policy assessments and comparison. Novelty � We bring to light new evidences on the effects of taxes polices on FDI. Type of Paper - Empirical

Suggested Citation

  • Onome Christopher Edo & Anthony Okafor, PhD & Akhigbodemhe Emmanuel Justice, 2020. "Tax Policy and Foreign Direct Investment: A Regime Change Analysis," GATR Journals jfbr176, Global Academy of Training and Research (GATR) Enterprise.
    • Handle: RePEc:gtr:gatrjs:jfbr176
    DOI: https://doi.org/10.35609/jfbr.2020.5.3(3)
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    References listed on IDEAS

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    1. Chenaf-Nicet, Dalila & Rougier, Eric, 2016. "The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements," International Economics, Elsevier, vol. 145(C), pages 66-91.
    2. EBIRE, Kolawole & ONMONYA, O. Lucky & INIM, V. Ekemini, 2018. "Effects of the Determinants of Foreign Direct Investment in Nigeria: Error Correction Mechanism," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 5(2), pages 155-164.
    3. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. EBIRE, Kolawole & ONMONYA, O. Lucky & INIM, V. Ekemini, 2018. "Effects of the Determinants of Foreign Direct Investment in Nigeria: Error Correction Mechanism," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 5(2), pages 155-164.
    6. Chenaf-Nicet, Dalila & Rougier, Eric, 2016. "The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements," International Economics, Elsevier, vol. 145(C), pages 66-91.
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    Cited by:

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    2. EDO Onome Christopher, 2021. "Direct Taxes and Income Redistribution in Nigeria," GATR Journals gjbssr596, Global Academy of Training and Research (GATR) Enterprise.

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    More about this item

    Keywords

    Corporate taxes; Tax Policies; Foreign Direct Investments; Error Correction Model; Military regime; Civilian regime.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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