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Tax Policy And The Efficiency Of U.S. Direct Investment Abroad

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  • Desai, Mihir A.
  • Foley, C. Fritz
  • Hines, James R. Jr.

Abstract

Deferral of U.S. taxes on foreign source income is commonly characterized as a subsidy to foreign investment, as reflected in its inclusion among “tax expenditures” and occasional calls for its repeal. This paper analyzes the extent to which tax deferral and other policies inefficiently subsidize U.S. direct investment abroad. Investments are dynamically inefficient if they consistently generate less in returns to investors than they absorb in new investment funds. From 1982–2010, repatriated earnings from foreign affiliates exceeded net capital investments by $1.1 trillion in 2010 dollars, and from 1950–2010, repatriated earnings and net interest from foreign affiliates exceeded net equity investments and loans by $2.1 trillion in 2010 dollars. By either measure, cash flows received from abroad exceeded 160 percent of net investments, implying that foreign investment over these periods was dynamically efficient.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 64 (2011)
Issue (Month): 4 (December)
Pages: 1055-82

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Handle: RePEc:ntj:journl:v:64:y:2011:i:4:p:1055-82

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  1. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, Elsevier, vol. 26(1), pages 107-121, February.
  2. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," CEPREMAP Working Papers (Docweb), CEPREMAP 0606, CEPREMAP.
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