The Effect of the Tax Reform Act of 1986 on the Location of Assets
AbstractThis paper examines the effects of the Tax Reform Act of 1986 on the international location decisions of U.S. financial services firms. The Act included rule changes that made it substantially more difficult for U.S. firms to defer U.S. taxes on overseas financial services income held in low-tax jurisdictions. These same rule changes were not applied to other forms of income; in particular, income generated from active manufacturing operations was still eligible for deferral after the Act. We use information from the tax returns of U.S. corporations to examine how local taxes affect the allocation of assets held abroad. We find that, before the Act, the location of assets in financial subsidiaries was responsive to differences in host country tax rates across jurisdictions. However, after the Act, differences in host country tax rates no longer explain the distribution of assets held in financial services subsidiaries abroad. In contrast, we find that assets held in manufacturing subsidiaries have become more sensitive to variations in tax rates. Our results suggest that the tightening of the anti-deferral provisions applicable to financial services companies has been successful in neutralizing the effect of host country income taxes on investment location decisions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200012.
Date of creation: 27 Jan 2002
Date of revision:
Contact details of provider:
Postal: New Jersey Hall - 75 Hamilton Street, New Brunswick, NJ 08901-1248
Phone: (732) 932-7482
Fax: (732) 932-7416
Web page: http://snde.rutgers.edu/Rutgers/wp/rutgers-wplist.html
More information through EDIRC
multinational; financial services; international taxation; investment policy; Tax Reform Act of 1986;
Find related papers by JEL classification:
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Feldstein, Martin & Hines, James R. & Hubbard, R. Glenn (ed.), 1995. "Taxing Multinational Corporations," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226240947.
- Jason Cummins & R. Glenn Hubbard, 1995.
"The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data,"
in: The Effects of Taxation on Multinational Corporations, pages 123-152
National Bureau of Economic Research, Inc.
- Jason G. Cummins & R. Glenn Hubbard, 1994. "The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data," NBER Working Papers 4703, National Bureau of Economic Research, Inc.
- Hines, James R. Jr., 1999. "The Case against Deferral: A Deferential Reconsideration," National Tax Journal, National Tax Association, vol. 52(n. 3), pages 385-404, September.
- Desai, Mihir A. & Hines Jr., James R., 1999. ""Basket cases": Tax incentives and international joint venture participation by American multinational firms," Journal of Public Economics, Elsevier, vol. 71(3), pages 379-402, March.
- Hines, J.R. & Rice, E.M., 1990.
"Fiscal Paradise: Foreign Tax Havens And American Business,"
56, Princeton, Woodrow Wilson School - Discussion Paper.
- Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
- James R. Hines, Jr. & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc.
- Rosanne Altshuler & T. Scott Newlon & Joel Slemrod, 1993.
"The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U. S . Multinational Corporations,"
in: Studies in International Taxation, pages 77-116
National Bureau of Economic Research, Inc.
- Rosanne Altshuler & T. Scott Newlon, 1991. "The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U.S. Multinational Corporations," NBER Working Papers 3925, National Bureau of Economic Research, Inc.
- Altshuler, R. & Newlon, T.S., 1991. "The Effects of US Tax Policy on the Income Repatriation Patterns of US Multinational Corporations," Discussion Papers 1991_60, Columbia University, Department of Economics.
- Michael P. Devereux & R. Glenn Hubbard, 2000.
NBER Working Papers
7920, National Bureau of Economic Research, Inc.
- James R. Hines, Jr. & R. Glenn Hubbard & R. Glenn Hubbard, 1995. "Appendix to "Taxing Multinational Corporations"," NBER Chapters, in: Taxing Multinational Corporations, pages 103-106 National Bureau of Economic Research, Inc.
- Egger, Peter & Wamser, Georg, 2011. "The Impact of Controlled Foreign Company Legislation on Real Investments Abroad: A Two-dimensional Regression Discontinuity Design," CEPR Discussion Papers 8460, C.E.P.R. Discussion Papers.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.