Globalization and U.S. Corporate Tax Policies: Evidence From Import Competition

52 Pages Posted: 6 Mar 2018 Last revised: 1 Oct 2018

See all articles by Tao Chen

Tao Chen

Nanyang Technological University (NTU) - Division of Banking & Finance

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Xiang Shao

Fudan University - School of Management

Date Written: June 15, 2016

Abstract

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

Suggested Citation

Chen, Tao and Lin, Chen and Shao, Xiang, Globalization and U.S. Corporate Tax Policies: Evidence From Import Competition (June 15, 2016). Available at SSRN: https://ssrn.com/abstract=3135205 or http://dx.doi.org/10.2139/ssrn.3135205

Tao Chen (Contact Author)

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1A-08, Nanyang Avenue
Singapore, 639798
Singapore

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Xiang Shao

Fudan University - School of Management ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

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