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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. 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.
  2. 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.
  3. 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.
  4. Sinn, H.W., 1990. "Taxation And The Birth Of Foreign Subsidiaries," Papers 66, Princeton, Woodrow Wilson School - Discussion Paper.
  5. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, December.
  6. Michael W. Klein & Eric S. Rosengren, 1992. "The real exchange rate and foreign direct investment in the United States: relative wealth vs. relative wage effects," Working Papers 92-2, Federal Reserve Bank of Boston.
  7. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
  8. 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.
  9. 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.
  10. James R. Hines Jr., 1992. "Credit and Deferral as International Investment Incentives," NBER Working Papers 4191, National Bureau of Economic Research, Inc.
  11. 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.
  12. 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.
  13. 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.
  14. Hines, J.R., 1990. "The Flight Paths Of Migratory Corporations," Papers 65, Princeton, Woodrow Wilson School - Discussion Paper.
  15. Hines, J.R. & Rice, E.M., 1990. "Fiscal Paradise: Foreign Tax Havens And American Business," Papers 56, Princeton, Woodrow Wilson School - Discussion Paper.
  16. Joel Slemrod, 1989. "Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison," NBER Working Papers 3042, National Bureau of Economic Research, Inc.
  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. Hines, J.R., 1990. "The Transfer Pricing Problem: Where The Profit Are," Papers 64, Princeton, Woodrow Wilson School - Discussion Paper.
  19. 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.
  20. David G. Hartman, 1981. "Domestic Tax Policy and Foreign Investment: Some Evidence," NBER Working Papers 0784, National Bureau of Economic Research, Inc.
  21. 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.
  22. 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.
  23. 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.
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