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Taxation and Foreign Direct Investment Inflows: Time Series Evidence from the US

Albert Wijeweera and Don Clark

Global Economic Review, 2006, vol. 35, issue 2, 135-143

Abstract: This study investigates long run and short run relationships between the corporate income tax rate and foreign direct investment (FDI) inflows to the US. The tax rate is found to exert a significant negative effect on total FDI and transfer fund inflows in the long run. A 1% decrease in the tax rate would increase total FDI by 2.4% and transfer funds by 4.2%. Collectively, results suggest that the US can use tax policies to attract FDI from abroad. Concern over the possibility of tax competition among countries to attract foreign capital is warranted.

Keywords: Corporate income tax rate; foreign direct investment (FDI); tax rate elasticities; reinvested earnings; transfer funds (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1080/12265080600715285

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Handle: RePEc:taf:glecrv:v:35:y:2006:i:2:p:135-143