Abstract
In the open economy, the government always regards improving the national competitiveness as an important strategic goal. The use of tax means is an important way of the application of national macroeconomic policies. How to effectively improve the competitiveness of the international tax system has become a matter of great concern to us. Based on the OECD average effective tax rate model, this paper uses the average effective tax rate as an indicator of the competitiveness of the international tax system to test its impact on China's FDI decision-making. It is found that the lower average effective tax rate of the host country is beneficial to the inflow of FDI. In the process of calculating the average effective tax rate, enterprise income tax is an important tax parameter affecting the marginal average tax rate. In order to improve the competitiveness of China's tax system, it is suggested to promote foreign investment and attract high-quality foreign direct investment. Consider the perfection of tax system from two perspectives of capital.
Highlights
As from the early 1980s, the neoliberal tax reform trend has swept across the globe and international tax competition has intensified
In order to study the impact of the international tax competitiveness represented by the average effective tax rate (EATR) on Foreign Direct Investment (FDI), based on the classical gravity model, this paper introduces the variables of average effective tax rate, economic development level, investment demand, market openness, system quality, resource endowment and labor scale
Model (1) shows that for every 1% increase in per capita GDP of the host country, foreign direct investment will increase by 1.922%, which confirms the previous literature that China's foreign direct investment tends to flow to higher economies with higher economic development levels
Summary
As from the early 1980s, the neoliberal tax reform trend has swept across the globe and international tax competition has intensified. The statutory tax rate, progressive grade and tax relief, etc. Of corporate income tax and individual income tax have been reduced or decreased. The impact of international liberalization has become prominent, the trade tax revenues have declined and the income tax increase pressure have increased. Fierce competition for liquid assets and the cross-border tax avoidance have restricted the taxation of enterprises and high-income earners. The maximum statutory tax rate of individual and enterprise income tax has declined dramatically from the 1980s to today. The global weighted corporate income tax rate dropped from about 46.63% in 1980 to 26.47% in
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