Publication Type

Magazine Article

Version

Publisher’s Version

Publication Date

1-2018

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

Discipline

Accounting | Taxation

Volume

6

Issue

1

First Page

1

Last Page

32

Publisher

SSRN

Embargo Period

5-27-2020

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