Unveiling the Foreign Investment Magnet: Analysis of FDI Determinants and Their Impact on Corporate Tax in ASEAN

Abstract

This study examines the impact of various economic and social variables on corporate income tax revenue, both directly and through foreign direct investment (FDI) as a mediating variable. The variables investigated encompass market dimensions, trade policies, macroeconomic indicators, governance, taxation policies, demographics, and pandemic impacts. Utilizing panel data from 10 ASEAN countries during the 2016-2020 period with a total of 50 observations, the analysis was conducted through a random effect regression model. The research findings reveal several significant results. Regarding FDI, market size and the Covid-19 pandemic demonstrate negative impacts, while government debt and political stability positively drive FDI growth. Concerning corporate income tax revenue, factors showing negative influences include market size, trade openness, and government debt. Conversely, corporate tax rates, tax treaties, population size, human resource quality, and FDI contribute positively to tax revenue. This study also identifies indirect effects of government debt and political stability on tax revenue through the FDI channel.