Effects of home country tax reform on FDI inflows to South Korea: A synthetic control method approach

Abstract

To encourage the repatriation of foreign subsidiaries’ profits, Japan and the UK switched from a worldwide tax system to a territorial one in 2009. These home country tax reforms could cause the unintended result of allowing multinational corporations (MNCs) to invest more in low-tax countries due to the possibility of profit shifting. Using the dataset of South Korea and the synthetic control method, we find that the transition to a territorial tax system causes Japan, a country with a relatively high corporate tax, to increase its investment in South Korea. © 2023 Elsevier B.V.