Tax Policy and the Efficiency of U.S. Direct Investment Abroad

Mihir A. Desai, C. Fritz Foley and James Hines

No 17202, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Deferral of U.S. taxes on foreign source income is commonly characterized as a subsidy to foreign investment, as reflected in its inclusion among "tax expenditures" and occasional calls for its repeal. This paper analyzes the extent to which tax deferral and other policies inefficiently subsidize U.S. direct investment abroad. Investments are dynamically inefficient if they consistently generate fewer returns to investors than they absorb in new investment funds. From 1982-2010, repatriated earnings from foreign affiliates exceeded net capital investments by $1.1 trillion in 2010 dollars; and from 1950-2010, repatriated earnings and net interest from foreign affiliates exceeded net equity investments and loans by $2.1 trillion in 2010 dollars. By either measure, cash flows received from abroad exceeded 160 percent of net investments, implying that foreign investment over these periods was dynamically efficient.

JEL-codes: D92 H21 H25 (search for similar items in EconPapers)
Date: 2011-07
Note: CF ITI PE
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Citations: View citations in EconPapers (4)

Published as Desai, Mihir A. & Foley, C. Fritz & Hines, James R. Jr., 2011. "Tax Policy And The Efficiency Of U.S. Direct Investment Abroad," National Tax Journal, National Tax Association, vol. 64(4), pages 1055-82, December .

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Journal Article: Tax Policy and the Efficiency of U.S. Direct Investment Abroad (2011)
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