Effect of corporate tax rate on foreign direct investment: analysis for India

Abstract

It is not easy to do business in India. Investment in India is not straightforward or well-ordered. However, it is the era to earn supernormal profit and it offers the golden opportunity to invest. It will not be without risks and disappointment, but rewards will correspond to it. This paper reflected the relationship between corporate tax rates and inflow of foreign direct investment in domestic country and how it affects domestic entrepreneurship using time series data for 40 years (1980-2019). In this study, a linear regression model captured the effect of policy factor corporate tax rates, and other economic factors on Foreign Direct Investment (FDI) inflows. According to findings using mergers and acquisitions, there is a positive relationship between the inflow of foreign direct investment and entrepreneurship. Because of trade liberalism, a small country may now compete for foreign direct investment if it can provide a sufficiently attractive package. But sometimes policymakers cannot make head or tail, so they have lost many of the instruments traditionally used to promote local competitiveness, employment, and welfare. Here, openness is the most significant variable, so to create more incentives for foreign direct investment government should take openness into consideration before making policies. Keywords: inflow of foreign direct investment, corporate tax rate, domestic entrepreneurship