The purpose of this independent study is to determine the impact a decrease in the tax rate has on the amount of foreign direct investment (FDI) a country receives. Specifically, if low income countries are more likely than high income countries to decrease their tax rate to attract FDI. Theory shows a lower tax rate will increase the profit of a firm, incentivizing them to invest in a country with lower taxes in order to increase their profit. Previous literature on the topic states low income countries are more likely to lower their tax rate, as they attempt to attract investment from corporations. To test this, the corporate tax and profit tax variables were estimated in an OLS regression with FDI as the dependent variable. I used data from 78 high income countries and 31 low income countries over a 35-year period of 1980-2015. By doing this I was able to analyze the results to determine that the corporate tax rate, when increased, decreases the amount of FDI in a low income country more so than in a high income country. However, the profit tax equation as well as the high income results do not agree with my hypothesis. I conclude why this might be the case in my results.
Munson, Allison, "The Impact of the Tax Rate on Foreign Direct Investment in High Income Versus Low Income Countries" (2017). Senior Independent Study Theses. Paper 7675.
Bachelor of Arts
Senior Independent Study Thesis
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