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Taxation and Foreign Direct Investment in the United States: A Reconsideration of the Evidence

In: Studies in International Taxation

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Listed:
  • Alan J. Auerbach
  • Kevin Hassett
  • Joel Slemrod

Abstract

Foreign direct investment in the United States boomed in the late 1980s. Some have attributed this rise to the Tax Reform Act of 1986, which by discouraging investment by domestic firms may have provided opportunities for foreign firms not as strongly affected by the U.S. tax changes. We challenge this view on theoretical and empirical grounds, finding that: (1) While the argument applies to new capital investment, the boom was primarily in mergers and acquisitions; (2) While the argument holds primarily for investment in equipment, there was no shift toward the acquisition of equipment-intensive firms, and (3) The FDI boom in the U.S. was really part of a worldwide FDI boom ? the U.S. share of outbound FDI from other countries did not increase during the period 1987-9.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberch:7996
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    References listed on IDEAS

    as
    1. Auerbach, Alan J, 1989. "Tax Reform and Adjustment Costs: The Impact on Investment and Market Value," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 939-962, November.
    2. Slemrod, J., 1990. "The Impact Of The Tax Reform Act Of 1986 On Foreign Direct Investment To And From The United States," Working Papers 256, Research Seminar in International Economics, University of Michigan.
    3. Alan J. Auerbach & James R. Hines, Jr., 1987. "Anticipated Tax Changes and the Timing of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 163-200, National Bureau of Economic Research, Inc.
    4. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1.
    5. repec:fth:michin:256 is not listed on IDEAS
    6. 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.
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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