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Altered States: Taxes and the Location of Foreign Direct Investment in America

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  • James R. Hines Jr.

Abstract

This paper examines the effect of taxation on foreign investment and on business location within the United States. The idea is to compare the inter-state distribution of investments from certain foreign countries (those with foreign tax credit systems) with the distribution of investments from other countries. Investors from countries with foreign tax credit systems receive home-country tax credits for income taxes paid to US states, so they are less likely than are other investors to avoid investing in high-tax states. The results indicate that 1% differences in state corporate tax rates are associated with 7-9% differences between the investment shares of foreign tax credit investors and the investment shares of all others, suggesting that state taxes significantly influence the pattern of foreign direct investment in the US.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4397.

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Date of creation: May 1997
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Handle: RePEc:nbr:nberwo:4397

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  1. Alan J. Auerbach & Kevin Hassett, 1991. "Taxation and Foreign Direct Investment in the United States: A Reconsideration of the Evidence," NBER Working Papers 3895, National Bureau of Economic Research, Inc.
  2. James R. Hines, Jr., 1990. "The Transfer Pricing Problem: Where the Profits Are," NBER Working Papers 3538, National Bureau of Economic Research, Inc.
  3. Klein, Michael W. & Rosengren, Eric, 1994. "The real exchange rate and foreign direct investment in the United States : Relative wealth vs. relative wage effects," Journal of International Economics, Elsevier, vol. 36(3-4), pages 373-389, May.
  4. Hines, J.R.J. & Hubbard, R.G., 1989. "Coming Home To America - Devidend Repatriations By U.S. Multinationals," Papers 146, Princeton, Woodrow Wilson School - Public and International Affairs.
  5. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, October.
  6. David G. Hartman, 1981. "Domestic Tax Policy and Foreign Investment: Some Evidence," NBER Working Papers 0784, National Bureau of Economic Research, Inc.
  7. Hines, J.R., 1990. "The Flight Paths Of Migratory Corporations," Papers 65, Princeton, Woodrow Wilson School - Discussion Paper.
  8. Hines, J.R. & Rice, E.M., 1990. "Fiscal Paradise: Foreign Tax Havens And American Business," Papers 56, Princeton, Woodrow Wilson School - Discussion Paper.
  9. James R. Hines Jr., 1994. "Credit and Deferral as International Investment Incentives," NBER Working Papers 4191, National Bureau of Economic Research, Inc.
  10. Hans-Werner Sinn, 1990. "Taxation and the Birth of Foreign Subsidiaries," NBER Working Papers 3519, National Bureau of Economic Research, Inc.
  11. Swenson, Deborah L., 1994. "The impact of U.S. tax reform on foreign direct investment in the United States," Journal of Public Economics, Elsevier, vol. 54(2), pages 243-266, June.
  12. Bartik, Timothy J, 1985. "Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 14-22, January.
  13. Michael J. Boskin & William G. Gale, 1988. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Working Papers 1862, National Bureau of Economic Research, Inc.
  14. Carlton, Dennis W, 1983. "The Location and Employment Choices of New Firms: An Econometric Model with Discrete and Continuous Endogenous Variables," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 440-49, August.
  15. Robert E. Lipsey, 1994. "Foreign Direct Investment in the U.S.: Changes Over Three Decades," NBER Working Papers 4124, National Bureau of Economic Research, Inc.
  16. 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.
  17. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
  18. Newman, Robert J, 1983. "Industry Migration and Growth in the South," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 76-86, February.
  19. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November.
  20. Newman, Robert J. & Sullivan, Dennis H., 1988. "Econometric analysis of business tax impacts on industrial location: What do we know, and how do we know it?," Journal of Urban Economics, Elsevier, vol. 23(2), pages 215-234, March.
  21. Coughlin, Cletus C & Terza, Joseph V & Arromdee, Vachira, 1991. "State Characteristics and the Location of Foreign Direct Investment within the United States," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 675-83, November.
  22. 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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  1. You Can Pry our 12.5% Rate from our Cold, Dead Fingers
    by Ron Davies in The Irish Economy on 2010-11-15 12:41:17
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