Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison

Joel Slemrod

No 3042, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates how the tax system of the U.S. and the capital-exporting country combine to affect the flow of foreign direct investment (FDI) into the U.S. First, using aggregate data, it corroborates earlier work suggesting that the U.S. effective tax rate does influence the amount of FDI financed by transfers of funds, but not the amount financed by retained earnings. The data are then disaggregated by major capital-exporting countries to see if, as theory would suggest, FDI from countries which exempt foreign-source income from taxation is more sensitive to U.S. tax rates than FDI from countries which attempt to tax foreign-source income. The data analysis does not reveal a clear differential responsiveness between these two groups of countries, suggesting either difficulties in accurately measuring effective tax rates or the availability of financial strategies which render the home country tax system immaterial in affecting the return on FDI.

Date: 1989-07
Note: PE
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Published as Taxation in the Global Economy, edited by Assaf Razin and Joel Slemrod, pp. 79-117. Chicago: The University of Chicago Press, 1990.
Published as Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison , Joel B. Slemrod. in Taxation in the Global Economy , Razin and Slemrod. 1990

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Chapter: Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison (1990)
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