Globalization and U.S. Corporate Tax Policies: Evidence From Import Competition

67 Pages Posted: 6 Mar 2018 Last revised: 16 Mar 2021

See all articles by Tao Chen

Tao Chen

Nanyang Technological University (NTU) - Division of Banking & Finance

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Xiang Shao

Fudan University - School of Management

Date Written: February 27, 2021

Abstract

This paper studies how globalization affects the corporate tax policies of U.S. manufacturing firms. Using U.S. granting China Permanent Normal Trade Relations as a quasi-natural experiment, we find a significant increase in tax reduction activities for firms facing higher exposure to Chinese imports. The effect is more pronounced for firms with higher managerial slack. We also find that the effect is stronger for firms in less diversified products market and faster changing industries. We also show that U.S. firms facing higher Chinese import competition are more likely to engage in other tax-motivated activities: acquisition of subsidiaries in low-tax regions and suspected transfer pricing. Furthermore, we explore the 2017 tax cut and the recent U.S.-China trade dispute, and find that firms engage less in tax reduction activities after the 2017 tax cut and after the tariff increase for Chinese imports.

Keywords: Globalization, Tax Policies, Natural Experiment, Chinese Import Competition, Permanent Normal Trade Relations

Suggested Citation

Chen, Tao and Lin, Chen and Shao, Xiang, Globalization and U.S. Corporate Tax Policies: Evidence From Import Competition (February 27, 2021). Available at SSRN: https://ssrn.com/abstract=3135205 or http://dx.doi.org/10.2139/ssrn.3135205

Tao Chen (Contact Author)

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1A-08, Nanyang Avenue
Singapore, 639798
Singapore

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Xiang Shao

Fudan University - School of Management ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

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