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The Effects of Bilateral Tax Treaties on U.S. FDI Activity

Author

Listed:
  • Bruce A. Blonigen

    (University of Oregon Economics Department)

  • Ronald B. Davies

    (University of Oregon Economics Department)

Abstract

The effects of bilateral tax treaties on FDI activity have been unexplored, despite significant ongoing activities by countries to negotiate and ratify these treaties. This paper estimates the impact of bilateral tax treaties using both U.S. inbound and outbound FDI over the period 1966-1992. Robust to a wide variety of alternative specifications, we find no evidence that bilateral tax treaties increase FDI activity, contrary to OECD-stated goals for such treaties. In fact, our estimates suggest that for our sample there may instead be economically and statistically significant negative effects of new bilateral tax treaties on U.S. outbound activity to the tax treaty partner country. These findings are consistent with claims that tax treaties are not intended to improve capital flows, but rather to reduce tax evasion through transfer pricing practices or otherwise.

Suggested Citation

  • Bruce A. Blonigen & Ronald B. Davies, 2001. "The Effects of Bilateral Tax Treaties on U.S. FDI Activity," University of Oregon Economics Department Working Papers 2001-14, University of Oregon Economics Department, revised 01 Jan 2001.
    • Handle: RePEc:ore:uoecwp:2001-14
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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