Effects of home country tax reform on FDI inflows to South Korea: A synthetic control method approach

JinHyuk Yang and Youngho Kang

Economics Letters, 2023, vol. 225, issue C

Abstract: To encourage the repatriation of foreign subsidiaries’ profits, Japan and the UK switched from a worldwide tax system to a territorial one in 2009. These home country tax reforms could cause the unintended result of allowing multinational corporations (MNCs) to invest more in low-tax countries due to the possibility of profit shifting. Using the dataset of South Korea and the synthetic control method, we find that the transition to a territorial tax system causes Japan, a country with a relatively high corporate tax, to increase its investment in South Korea.

Keywords: FDI; Worldwide tax system; Territorial tax system; Synthetic control method (search for similar items in EconPapers)
JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:225:y:2023:i:c:s0165176523000769

DOI: 10.1016/j.econlet.2023.111051

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