THE EFFECTS OF TAXES AND RATES OF RETURN ON FOREIGN DIRECT INVESTMENT IN THE UNITED STATES

Kan Hua Young

110 citations0/0 files storedNational Tax Journal

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International Business and FDI Taxation and Legal Issues Corporate Taxation and Avoidance

Abstract

This paper provides an analysis of the effects of domestic taxes and rates of return on foreign direct investment in the United States. The results show that, whereas foreign direct investment through retained earnings may be elastic with respect to tax rates and rates of return, foreign direct investment through new funds is inelastic with respect to tax rates and rates of return. Overall, the study indicates that the 1981-82 tax incentives increased total annual foreign direct investment in the United States by $1.7 to $4.8 billion (or 8 percent to 22 percent). On the other hand, the recent 1986 tax reform may decrease total annual foreign direct investment in the United States by $1.8 to $5.4 billion (or 8 percent to 25 percent). The welfare effect of these tax impacts is moderate, because tax revenue derived from total foreign direct investment appears to be inelastic with respect to the tax rate applicable to foreigners.

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References

2007Multinational Enterprise and Economic Analysis 1970Testing for Serial Correlation in Least-Squares Regression When Some of the Regressors are Lagged Dependent Variables 1983Multinational Enterprise and Economic Analysis 1983Determinants of U.S. direct investment in the E.E.C.

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2007Economic Growth and the Role of Taxation 1994The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data 2000The impact of tax incentives on foreign direct investment in China n.d.Taxation in the Global Economy 2006Do tax sparing agreements contribute to the attraction of FDI in developing countries?2006Capital Mobility and Source-Based Taxation of Capital Income in Small Open Economies 2000The Disappearing Tax Base 2001Determinants of Regional Investment Decisions in China: An Econometric Model of Tax Incentive Policy

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