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Tax competition for FDI: China’s exceptional approach

Author

Listed:
  • Kate Hynes

    (Dublin City University)

  • Yongzheng Liu

    (Renmin University of China)

  • Jie Ma

    (University of International Business and Economics)

  • Ian Wooton

    (University of Strathclyde)

Abstract

In this Policy Watch study, we explore the different approaches to corporate income tax (CIT) setting in three economically significant regions: USA, EU, and People’s Republic of China (PRC). We characterize tax-setting in the three regions as occurring at three hierarchical levels and examine the impact of this on tax competition. We find that there is considerable heterogeneity across the regions. The approach in the PRC is particularly notable. While the PRC has established centralized rate of CIT at the highest level, it is unique in having a tax-sharing system with its lower tiers of government. This connection between the different levels of government within the PRC plays a crucial role in China’s unique CIT rate-setting agenda that results in intense and tacit inter-jurisdictional tax competition.

Suggested Citation

  • Kate Hynes & Yongzheng Liu & Jie Ma & Ian Wooton, 2022. "Tax competition for FDI: China’s exceptional approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(3), pages 788-809, June.
    • Handle: RePEc:kap:itaxpf:v:29:y:2022:i:3:d:10.1007_s10797-021-09709-7
    DOI: 10.1007/s10797-021-09709-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax competition; FDI; Tax-sharing system; China;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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