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The Effect Of Taxes On Investment And Income Shifting To Puerto Rico

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Author Info

  • Harry Grubert
  • Joel Slemrod

Abstract

The income of Puerto Rican affiliates of U.S. corporations is essentially untaxed by either Puerto Rico or the United States. This lowers the tax penalty on investment there, and also makes it attractive to shift reported taxable income from the U.S. parent corporation to the Puerto Rican affiliate. This paper investigates these two interrelated impacts of taxation by developing a structural econometric model of the joint decisions regarding investment and income shifting, and estimating the model using firm-level data on the activity U.S. corporations in Puerto Rico. The results suggest that the income shifting advantages are the predominant reason for U.S. investment in Puerto Rico. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/003465398557609
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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 80 (1998)
Issue (Month): 3 (August)
Pages: 365-373

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Handle: RePEc:tpr:restat:v:80:y:1998:i:3:p:365-373

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Web page: http://mitpress.mit.edu/journals/

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  1. Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
  2. Michael J. Boskin & William G. Gale, 1986. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Working Papers 1862, National Bureau of Economic Research, Inc.
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