Tax competition for FDI: China’s exceptional approach
Yongzheng Liu (),
Jie Ma and
Ian Wooton ()
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Yongzheng Liu: Renmin University of China
Jie Ma: University of International Business and Economics
International Tax and Public Finance, 2022, vol. 29, issue 3, No 9, 788-809
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.
Keywords: Tax competition; FDI; Tax-sharing system; China (search for similar items in EconPapers)
JEL-codes: F21 H25 H73 R50 (search for similar items in EconPapers)
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