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Taxation and Foreign Direct Investment Inflows: Time Series Evidence from the US

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  • Albert Wijeweera
  • Don Clark

Abstract

This study investigates long run and short run relationships between the corporate income tax rate and foreign direct investment (FDI) inflows to the US. The tax rate is found to exert a significant negative effect on total FDI and transfer fund inflows in the long run. A 1% decrease in the tax rate would increase total FDI by 2.4% and transfer funds by 4.2%. Collectively, results suggest that the US can use tax policies to attract FDI from abroad. Concern over the possibility of tax competition among countries to attract foreign capital is warranted.

Suggested Citation

  • Albert Wijeweera & Don Clark, 2006. "Taxation and Foreign Direct Investment Inflows: Time Series Evidence from the US," Global Economic Review, Taylor & Francis Journals, vol. 35(2), pages 135-143.
  • Handle: RePEc:taf:glecrv:v:35:y:2006:i:2:p:135-143
    DOI: 10.1080/12265080600715285
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    References listed on IDEAS

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