Local Tax Incentives and Behavior of Foreign Enterprises: Evidence from a Large Developing Country

32 Pages Posted: 19 Jan 2018

See all articles by Jing Xing

Jing Xing

Antai College of Economics & Management, Shanghai Jiao Tong University

Wei Cui

University of British Columbia (UBC), Faculty of Law

Xi Qu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Date Written: January 18, 2018

Abstract

We analyze how profit reporting and investment behavior of foreign enterprises respond to local tax incentives in China, a large developing country. Using firm-level data between 2000 and 2013 from China’s industrial enterprise survey, we first provide strong evidence for tax competition among Chinese cities (especially cities within the same province) over the average effective income tax rate. We then find that, despite stringent capital controls, both reported pre-tax profits and investment of foreign firms respond strongly to local tax incentives, suggesting that subnational tax competition in China is oriented towards both mobile profits and real resources.

Keywords: tax competition, FDI, investment, profit

Suggested Citation

Xing, Jing and Cui, Wei and Qu, Xi, Local Tax Incentives and Behavior of Foreign Enterprises: Evidence from a Large Developing Country (January 18, 2018). Singapore Management University School of Accountancy Research Paper No. 2018-S-71, Vol. 6, No. 1, Special Issue: Tax, Available at SSRN: https://ssrn.com/abstract=3104973 or http://dx.doi.org/10.2139/ssrn.3104973

Jing Xing (Contact Author)

Antai College of Economics & Management, Shanghai Jiao Tong University ( email )

1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200030
China
86 21 52301040 (Phone)

HOME PAGE: http://www.acem.sjtu.edu.cn/en/faculty/xingjing.html

Wei Cui

University of British Columbia (UBC), Faculty of Law ( email )

1822 East Mall
Vancouver, BC V6T1Z1
Canada

HOME PAGE: http://https://allard.ubc.ca/about-us/our-people/wei-cui

Xi Qu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
175
Abstract Views
1,549
rank
248,798
PlumX Metrics