The Effect of the Tax Reform Act of 1986 on the Location of Assets
This paper examines the effects of the Tax Reform Act of 1986 on the international location decisions of U.S. financial services firms. The Act included rule changes that made it substantially more difficult for U.S. firms to defer U.S. taxes on overseas financial services income held in low-tax jurisdictions. These same rule changes were not applied to other forms of income; in particular, income generated from active manufacturing operations was still eligible for deferral after the Act. We use information from the tax returns of U.S. corporations to examine how local taxes affect the allocation of assets held abroad. We find that, before the Act, the location of assets in financial subsidiaries was responsive to differences in host country tax rates across jurisdictions. However, after the Act, differences in host country tax rates no longer explain the distribution of assets held in financial services subsidiaries abroad. In contrast, we find that assets held in manufacturing subsidiaries have become more sensitive to variations in tax rates. Our results suggest that the tightening of the anti-deferral provisions applicable to financial services companies has been successful in neutralizing the effect of host country income taxes on investment location decisions.
|Date of creation:||27 Jan 2002|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (732) 932-7482
Fax: (732) 932-7416
Web page: http://snde.rutgers.edu/Rutgers/wp/rutgers-wplist.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Desai, Mihir A. & Hines Jr., James R., 1999. ""Basket cases": Tax incentives and international joint venture participation by American multinational firms," Journal of Public Economics, Elsevier, vol. 71(3), pages 379-402, March.
- Altshuler, R. & Newlon, T.S., 1991.
"The Effects of US Tax Policy on the Income Repatriation Patterns of US Multinational Corporations,"
1991_60, Columbia University, Department of Economics.
- Rosanne Altshuler & T. Scott Newlon & Joel Slemrod, 1993. "The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U. S . Multinational Corporations," NBER Chapters, in: Studies in International Taxation, pages 77-116 National Bureau of Economic Research, Inc.
- Rosanne Altshuler & T. Scott Newlon, 1991. "The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U.S. Multinational Corporations," NBER Working Papers 3925, National Bureau of Economic Research, Inc.
- Hines, J.R. & Rice, E.M., 1990.
"Fiscal Paradise: Foreign Tax Havens And American Business,"
56, Princeton, Woodrow Wilson School - Discussion Paper.
- Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
- James R. Hines, Jr. & Eric M. Rice, 1990. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc.
- Jason G. Cummins & R. Glenn Hubbard, 1994.
"The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data,"
NBER Working Papers
4703, National Bureau of Economic Research, Inc.
- Jason Cummins & R. Glenn Hubbard, 1995. "The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 123-152 National Bureau of Economic Research, Inc.
- Feldstein, Martin & Hines, James R. & Hubbard, R. Glenn (ed.), 1995. "Taxing Multinational Corporations," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226240947, December.
- Michael P. Devereux & R. Glenn Hubbard, 2000.
NBER Working Papers
7920, National Bureau of Economic Research, Inc.
- Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
- James R. Hines, Jr. & R. Glenn Hubbard & R. Glenn Hubbard, 1995. "Appendix to "Taxing Multinational Corporations"," NBER Chapters, in: Taxing Multinational Corporations, pages 103-106 National Bureau of Economic Research, Inc.
- Hines, James R. Jr., 1999. "The Case against Deferral: A Deferential Reconsideration," National Tax Journal, National Tax Association, vol. 52(n. 3), pages 385-404, September.
When requesting a correction, please mention this item's handle: RePEc:rut:rutres:200012. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.