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Bilateral tax treaties and US foreign direct investment financing modes

Author

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  • Joseph Daniels

    ()

  • Patrick O’Brien

    ()

  • Marc Ruhr

    ()

Abstract

Though it is often claimed that bilateral tax treaties promote foreign direct investment (FDI), previous empirical studies do not support this view. Indeed, the literature provides mixed results where bilateral tax treaties have a positive impact on FDI flows in some studies and a negative impact in other studies. Using US FDI outflows disaggregated into financing modes, equity capital, reinvested earnings, and inter-company debt, we estimate fixed-effects quantile regression models that include controls for new tax treaties, existing treaties (in place prior to the start of the sample period), and the total number of tax treaties a host country has in effect. Results, in general, indicate that both new and existing US bilateral tax treaties are associated with lower FDI outflows to the host country, while the total number of treaties a host country has in place is associated with greater US FDI outflows to the host country. These results also hold for reinvested earnings flows and equity capital flows. For debt flows, however, existing treaties are associated with greater flows, while new treaties and the total number of host treaties show no consistent statistically significant effect. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Joseph Daniels & Patrick O’Brien & Marc Ruhr, 2015. "Bilateral tax treaties and US foreign direct investment financing modes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(6), pages 999-1027, December.
  • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:6:p:999-1027
    DOI: 10.1007/s10797-014-9340-1
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    References listed on IDEAS

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    1. repec:kap:openec:v:29:y:2018:i:1:d:10.1007_s11079-017-9472-x is not listed on IDEAS
    2. Harendt, Christoph & Dreßler, Daniel & Overesch, Michael, 2016. "The Impact of Tax Treaties and Repatriation Taxes on FDI Revisited," Annual Conference 2016 (Augsburg): Demographic Change 145588, Verein für Socialpolitik / German Economic Association.
    3. Athiphat Muthitacharoen, 2017. "Assessing the Importance of Taxation on FDI: Evidence from South-East Asian Developing Countries," PIER Discussion Papers 65, Puey Ungphakorn Institute for Economic Research, revised Jul 2017.

    More about this item

    Keywords

    Foreign direct investment; Tax treaties; Financing modes; Quantile regression; F2; F21;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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