U.S. Tax Policy and Direct Investment Abroad

Joosung Jun

No 3049, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The analysis presented in this paper shows that u.s. tax policy can have significant effects on u.s. direct investment outflows through various channels. It is stressed that a sensible choice of specification and data in an empirical model entails a rigorous examination of the theoretical underpinnings behind the model. In particular, we emphasize the difference between foreign fixed investment undertaken by the foreign subsidiary and direct investment of the entire international firm, and the need to use different theoretical frameworks in each case. We present estimated equations relating the balance of payments direct investment outflows -- distinguishing between retained Subsidiary earnings and parent transfers -- to various measures of the u.s. net rate of return and the cost of funds. The evidence shows that u.s. tax policy toward domestic investment has an important effect on direct investment outflows by influencing the relative net rate of return between the U.S. and abroad. We estimate that a 16 cent reduction in transfers made by U.S. parents firms occurs for every dollar increase in U.S. domestic investment. In contrast to previous studies, transfers equations fit much better than retained earnings equations for every net return variable used in our estimation. Of the various specifications tested, the transfers equation containing a marginal, forward-looking and corporate-investor net return variable fits best, a result which is consistent with the predictions of our theoretical framework.

Date: 1989-07
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Taxation in the Global Economy, ed. by Assaf Razin and Joel Slemrod, University of Chicago Press, 1990.
Published as US Tax Policy and Direct Investment Abroad , Joosung Jun. in Taxation in the Global Economy , Razin and Slemrod. 1990

Downloads: (external link)
http://www.nber.org/papers/w3049.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:3049

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3049

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().