The effect of low rate of corporate taxation on foreign direct investments (FDI) and gross domestic product (GDP): A case study of ten selected countries (2018-2022)

Abstract

This research was undertaken to examine the effect of low corporation tax rate on Foreign Direct Investment (FDI) inflow and Gross Domestic Product (GDP). Investors and multinational firms are very rational and therefore prefer to invest in countries where the cost of taxation will be at the barest minimum to maximize their profit. The study aimed to critically analyze the Corporate Income Tax (CIT) rates of the randomly selected countries of the world, and their respective impacts on FDI and GDP. The study is descriptive in nature, based on quantitative data, sourced from various reports of Statutory Corporate Income Tax Rates of Tax Foundation, World Bank and UNCTAD World Investment Report of 2022. Ex-post Facto research design was deployed; while data were analyzed with a General Linear Model of Multivariate Analysis of Variance (MANOVA) with the aid of SPSS version 25. The study found that low rate of corporation tax has a positive and significant effect on FDI as well as on GDP. That is, CIT rate is a dominant determinant for FDI and GDP of countries.

Keywords

• corporate taxation
• foreign direct investments (fdi)
• corporate income tax (cit) rate