Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison
AbstractThis paper investigates how the tax system of the U.S. and the capital-exporting country combine to affect the flow of foreign direct investment (FDI) into the U.S. First, using aggregate data, it corroborates earlier work suggesting that the U.S. effective tax rate does influence the amount of FDI financed by transfers of funds, but not the amount financed by retained earnings. The data are then disaggregated by major capital-exporting countries to see if, as theory would suggest, FDI from countries which exempt foreign-source income from taxation is more sensitive to U.S. tax rates than FDI from countries which attempt to tax foreign-source income. The data analysis does not reveal a clear differential responsiveness between these two groups of countries, suggesting either difficulties in accurately measuring effective tax rates or the availability of financial strategies which render the home country tax system immaterial in affecting the return on FDI.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3042.
Date of creation: Jul 1989
Date of revision:
Publication status: published as Taxation in the Global Economy, edited by Assaf Razin and Joel Slemrod, pp. 79-117. Chicago: The University of Chicago Press, 1990.
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Other versions of this item:
- Joel B. Slemrod, 1990. "Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison," NBER Chapters, in: Taxation in the Global Economy, pages 79-122 National Bureau of Economic Research, Inc.
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