Taxes and the Form of Ownership of Foreign Corporate Equity

Roger Gordon and Joosung Jun

CEPR Financial Markets Paper from European Science Foundation Network in Financial Markets, c/o C.E.P.R, 33 Great Sutton Street, London EC1V 0DX.

Abstract: Investors can achieve international diversification in their portfolios not only through purchasing foreign equity directly but also through investing in domestic firms which then invest abroad. Yet these alternative approaches are taxed very differently. A number of countries have also imposed various forms of capital controls restricting direct purchases of foreign equity. This paper estimates the degree to which these tax and nontax factors have affected the relative use of these two alternative methods of international diversification, using data on investment in the US by investors from each of ten other countries during the period 1980-89. While the composition of equity flows differs dramatically across countries, taxes do not appear to play an important role in the date in explaining this variation. Part of the explanation appears to be that tax distortions adjust endogenously to avoid large scale portfolio investments abroad. With the increasing integration of capital markets and the easing of capital controls in many countries, we have seen and expect to continue to see reductions in the tax distortions affecting the form of international capital flows.

Keywords: Taxation of International Capital Flows; Foreign Direct Monitoring; Exclusivity (search for similar items in EconPapers)
Date: 1993-02
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Related works:
Chapter: Taxes and the Form of Ownership of Foreign Corporate Equity (1993)
Working Paper: Taxes and the Form of Ownership of Foreign Corporate Equity (1992)
Working Paper: Taxes and the Form of Ownership of Foreign Corporate Equity (1991)
Working Paper: Taxes and the Form of Ownership of Foreign Corporate Equity (1991)
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