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Taxation And The Birth Of Foreign Subsidiaries

The paper studies the influence of tax policy on foreign direct investment with a particular emphasis on immature subsidiaries. Among other things it shows that taxes on repatriations reduce the subsidiary's "birth weight", that lump sum taxes reduce its cost of capital, and that the possibility of deferral increases this cost. The paper rejects the popular weighted average specification of the subsidiary's cost of capital.

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Paper provided by Princeton, Woodrow Wilson School - Discussion Paper in its series Papers with number 66.

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Length: 37 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:fth:priwdp:66
Contact details of provider: Postal: PRINCETON UNIVERSITY, WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, DEPARTMENT OF ECONOMICS, PRINCETON NEW-JERSEY 08542 U.S.A.
Phone: (609) 258-4800
Web page: http://www.wws.princeton.edu/

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  1. Horst, Thomas, 1977. "American Taxation of Multinational Firms," American Economic Review, American Economic Association, vol. 67(3), pages 376-89, June.
  2. Alan J. Auerbach, 1980. "Wealth Maximization and the Cost of Capital," NBER Working Papers 0254, National Bureau of Economic Research, Inc.
  3. Howitt, Peter & Sinn, Hans-Werner, 1989. "Gradual Reforms of Capital Income Taxation," American Economic Review, American Economic Association, vol. 79(1), pages 106-24, March.
  4. David F. Bradford & Hugh J. Ault, 1990. "Taxing International Income: An Analysis of the U.S. System and Its Economic Premises," NBER Working Papers 3056, National Bureau of Economic Research, Inc.
  5. Bagwell, Laurie Simon & Shoven, John B, 1989. "Cash Distributions to Shareholders," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 129-40, Summer.
  6. Joosung Jun, 1989. "Tax Policy and International Direct Investment," NBER Working Papers 3048, National Bureau of Economic Research, Inc.
  7. Mitsuo Sato & Richard M. Bird, 1975. "International Aspects of the Taxation of Corporations and Shareholders (Aspects internationaux de l'imposition des sociétés et des actionnaires) (Aspectos internacionales de la tributación de socie," IMF Staff Papers, Palgrave Macmillan, vol. 22(2), pages 384-455, July.
  8. Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February.
  9. Edwards, J S S & Keen, M J, 1984. "Wealth Maximization and the Cost of Capital: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 211-14, February.
  10. King, Mervyn A, 1974. "Dividend Behaviour and the Theory of the Firm," Economica, London School of Economics and Political Science, vol. 41(161), pages 25-34, February.
  11. Murray C. Kemp, 1962. "Foreign Investment And The National Advantage," The Economic Record, The Economic Society of Australia, vol. 38(81), pages 56-62, 03.
  12. King, Mervyn, 1989. "Economic growth and the life-cycle of firms," European Economic Review, Elsevier, vol. 33(2-3), pages 325-334, March.
  13. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
  14. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1.
  15. Sinn, Hans-Werner, 1984. "Die Bedeutung des Accelerated Cost Recovery System fur den internationalen Kapitalverkehr. (The Significance of the Accelerated Cost Recovery System for International Capital Movements. With English s," Kyklos, Wiley Blackwell, vol. 37(4), pages 542-76.
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