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

  • Hines, James R, Jr

This paper compares the distribution between U.S. states of investment from countries that grant foreign tax credits with investment from all other countries. The ability to apply foreign tax credits against home-country tax liabilities reduces an investor's incentive to avoid high-tax foreign locations. State corporate tax rate differences of 1 percent are associated with differences of 9-11 percent 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 United States. Copyright 1996 by American Economic Association.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 86 (1996)
Issue (Month): 5 (December)
Pages: 1076-94

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Handle: RePEc:aea:aecrev:v:86:y:1996:i:5:p:1076-94
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  1. Hans-Werner Sinn, 1990. "Taxation and the Birth of Foreign Subsidiaries," NBER Working Papers 3519, National Bureau of Economic Research, Inc.
  2. Michael W. Klein & Eric Rosengren, 1992. "The Real Exchange Rate and Foreign Direct Investment in the United States: Relative Wealth vs. Relative Wage Effects," NBER Working Papers 4192, National Bureau of Economic Research, Inc.
  3. Alan J. Auerbach & Kevin Hassett & Joel Slemrod, 1993. "Taxation and Foreign Direct Investment in the United States: A Reconsideration of the Evidence," NBER Chapters, in: Studies in International Taxation, pages 119-148 National Bureau of Economic Research, Inc.
  4. 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.
  5. Michael J. Boskin & William G. Gale, 1986. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Working Papers 1862, National Bureau of Economic Research, Inc.
  6. 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.
  7. James R. Hines, Jr., 1990. "The Transfer Pricing Problem: Where the Profits Are," NBER Working Papers 3538, National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. 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.
  11. Hines, James Jr., 1994. "Credit and deferral as international investment incentives," Journal of Public Economics, Elsevier, vol. 55(2), pages 323-347, October.
  12. Robert E. Lipsey, 1992. "Foreign Direct Investment in the U.S.: Changes Over Three Decades," NBER Working Papers 4124, National Bureau of Economic Research, Inc.
  13. 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.
  14. 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.
  15. Hines, J.R., 1990. "The Flight Paths Of Migratory Corporations," Papers 65, Princeton, Woodrow Wilson School - Discussion Paper.
  16. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
  17. 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.
  18. H. Brinton Milward & Heidi Hosbach Newman, 1989. "State Incentive Packages and the Industrial Location Decision," Economic Development Quarterly, , vol. 3(3), pages 203-222, August.
  19. 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.
  20. 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.
  21. David G. Hartman, 1981. "Domestic Tax Policy and Foreign Investment: Some Evidence," NBER Working Papers 0784, National Bureau of Economic Research, Inc.
  22. 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.
  23. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, June.
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