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The Effect Of Taxes On Investment And Income Shifting To Puerto Rico

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  • Harry Grubert
  • Joel Slemrod

Abstract

The income of Puerto Rican affiliates of U.S. corporations is essentially untaxed by either Puerto Rico or the United States. This lowers the tax penalty on investment there, and also makes it attractive to shift reported taxable income from the U.S. parent corporation to the Puerto Rican affiliate. This paper investigates these two interrelated impacts of taxation by developing a structural econometric model of the joint decisions regarding investment and income shifting, and estimating the model using firm-level data on the activity U.S. corporations in Puerto Rico. The results suggest that the income shifting advantages are the predominant reason for U.S. investment in Puerto Rico. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Harry Grubert & Joel Slemrod, 1998. "The Effect Of Taxes On Investment And Income Shifting To Puerto Rico," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 365-373, August.
    • Handle: RePEc:tpr:restat:v:80:y:1998:i:3:p:365-373
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    References listed on IDEAS

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    1. Joel Slemrod, 2001. "A General Model of the Behavioral Response to Taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(2), pages 119-128, March.
    2. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 201-222, National Bureau of Economic Research, Inc.
    3. Michael J. Boskin, 1987. "Tax Policy and the International Location of Investment," NBER Chapters, in: Taxes and Capital Formation, pages 73-82, National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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