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Tax Policy and International Direct Investment

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  • Joosung Jun
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    Abstract

    The effects of taxes on direct investment capital outflows are investigated using a theoretical model which integrates the investment and financial decisions of the parent and subsidiary. The resulting marginal qs and costs of capital show that intrafirm investment allocation and tax neutrality results critically hinge on the marginal financing regime. By identifying a channel(s) through which a specific tax policy affects firm decisions, the model evaluates the combined effects of the home country tax system on direct investment. Out analysis suggests that while the 1986 U.S. Tax Reform Act may have an ambiguous effect on the overall level of capital outflows, it may induce more equipment investments to be undertaken abroad.

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    File URL: http://www.nber.org/papers/w3048.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3048.

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    Date of creation: Jul 1989
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    Handle: RePEc:nbr:nberwo:3048

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    1. James M. Poterba & Lawrence H. Summers, 1984. "The Economic Effects of Dividend Taxation," Working papers 343, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Alan J. Auerbach, 1984. "Taxation, Corporate Financial Policy and the Cost of Capital," NBER Working Papers 1026, National Bureau of Economic Research, Inc.
    3. Jacob A. Frenkel & Assaf Razin & Steve Symansky, 1990. "International Spillovers of Taxation," NBER Working Papers 2927, National Bureau of Economic Research, Inc.
    4. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc.
    5. Kolpits, George F, 1972. "Dividend Remittance Behavior Within the International Firm: A Cross-country Analysis," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 339-42, August.
    6. Joosung Jun, 1989. "U.S. Tax Policy and Direct Investment Abroad," NBER Working Papers 3049, National Bureau of Economic Research, Inc.
    7. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
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    Cited by:
    1. Sinn, H.W., 1990. "Taxation And The Birth Of Foreign Subsidiaries," Papers 66, Princeton, Woodrow Wilson School - Discussion Paper.
    2. Yasushi Iwamoto & Akihisa Shibata, 1999. "Foreign Tax Credit and the Current Account," International Tax and Public Finance, Springer, vol. 6(2), pages 131-148, May.

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