title: An empirical analysis of tax policy and inward foreign direct investment in Thailand
Creators: name: Boonaiem, Saowalak
Publisher: name: University of Glasgow
Year: 2022

description: Over the past 50 years, Thailand has heavily promoted investment through tax policies such as tax sparing agreements and tax incentives. The ratio of corporate tax revenue to gross domestic product has declined since 2011, which is a significant problem for the country. A major concern is the use of tax incentives to promote economic development. However, there is inconclusive evidence as to whether inward foreign direct investment (FDI) generates growth in the Thai economy. This thesis contains three empirical essays that attempt to investigate these issues. Together, the three empirical essays provide a clear vision of the influence of tax policies on inward FDI and how FDI affects heterogeneous sectoral growth in Thailand. The first empirical study aims to cast light onto the relationship between tax sparing agreements and inward FDI stock in Thailand from 178 jurisdictions, and to ascertain whether it differs depending on the level of economic development and the type of tax system in the investor countries. For this purpose, this study uses the Poisson pseudo maximum likelihood estimator in order to capture all observations, including zero FDI inbound stock over the sample period 2001-2017. The empirical results suggest that tax sparing agreements without a sunset clause have a favourable impact on the location choices of foreign investors, especially for developing investors while tax sparing agreements with a sunset clause largely decrease the investment from developing countries than developed countries. Likewise, the effect of tax sparing agreements on foreign direct investment is no significant difference across worldwide and territorial tax systems of the investor country. The second empirical study focuses on the effect of tax incentives, particularly tax holidays, granted by the Thai Board of Investment (BOI) on the investment and innovation of multinational firms (MNEs) and domestic firms in Thailand. Using administrative data on BOI promoted companies between 2009 and 2015, the empirical results show that tax holidays granted to multinational and Thai firms have a positive effect on their tangible and intangible assets up to two or three years after being promoted. MNEs invest substantially more in intangible assets than comparable firms when they benefit from both a tax holiday and a tax sparing provision, i.e. when the tax benefits received in Thailand are preserved at home under a special provision included in a bilateral tax treaty with Thailand. This study distinguishes MNEs from developing countries from MNEs from developed countries, as there is a clear trend for developing countries to have a worldwide tax system when most developed countries have a territorial tax system, leading thus to a tax burden disadvantage for the former firms. Once this disadvantage is mitigated by tax sparing, MNEs from developing countries seem to invest substantially more in physical investment. The third empirical study assesses the heterogeneous sectoral effects of FDI on output growth in Thailand by using sector-level data and investigates whether these impacts differ across investors from developed and developing countries. This analysis utilises a paneldata sample of 10 economic sectors over 14 years from 2005 to 2018. By using difference estimators, I find strong evidence that the effects of FDI in the absence of economic sectors can blur actual impacts on output. FDI inflows in manufacturing and wholesale sectors have significant and positive effects on outputs in the Thai economy, whereas inward FDI in the primary sectors of agriculture and mining slows outputs. Likewise, the Thai economy is more likely to benefit from a transfer of technology and knowledge when FDI comes from a developing country rather than from a developed one.