This paper investigates the economic impact of tax incentives for American exports. These incentives include a partial tax exemption for export profits (available by routing exports through Foreign Sales Corporations), and the allocation of some export profits to foreign source income for purposes of U.S. taxation. The analysis highlights three important aspects of these policies. First, official figures appear to understate dramatically the tax expenditures associated with some U.S. export incentives. Correctly measured, total export benefits provided through the income tax are equivalent to a one percent ad valorem subsidy. Second, the 1984 imposition of more rigorous requirements for obtaining tax benefits through Foreign Sales Corporations is contemporaneous with a significant change in the pattern of U.S. exports. Estimates imply that the 1984 changes reduced U.S. manufacturing exports by 3.1 percent. Third, there were significant market reactions to the 1997 event in which the European Union charged that U.S. income tax provisions are inconsistent with World Trade Organization rules prohibiting export subsidies. Filing of the European complaint coincides with a 0.1 percent fall in the value of the U.S. dollar and steep drops in the share prices of major American exporters.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
8009.
Length: Date of creation: Nov 2000 Date of revision: Handle: RePEc:nbr:nberwo:8009
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Find related papers by JEL classification: H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
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