Globalization and U.S. Corporate Tax Policies: Evidence From Import Competition
52 Pages Posted: 6 Mar 2018 Last revised: 1 Oct 2018
Date Written: June 15, 2016
This paper studies how globalization affects corporate tax planning strategies of U.S. manufacturing firms. Using U.S. granting China Permanent Normal Trade Relations (PNTR) as a quasi-natural experiment, we find a significant increase in tax avoidance for firms facing higher exposure to Chinese imports. The effect is more pronounced for firms with higher managerial slack. We also find that the effect is stronger for firms in less diversified product and faster-changing industry, but is mitigated by local social capital. We also find that firms facing higher Chinese import competition are more likely to acquire subsidiaries in low-tax regions as well as to engage in suspected transfer pricing activities.
Keywords: Globalization, Tax Policies, Natural Experiment, Chinese Import Competition, Permanent Normal Trade Relations
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