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Do Taxes Influence Where U.S. Corporations Invest?

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  • Grubert, Harry
  • Mutti, John

Abstract

This paper uses data aggregated from tax returns of more than 500 U.S. multinational corporations (MNCs) to identify the role of host country tax rates in determining the amount of capital invested in 60 potential locations. The empirical results show that average effective tax rates have a significant effect on the choice of a location and the amount of capital invested there. A lower tax rate that increases the after-tax return to capital by one percent is associated with about 3 percent more real capital invested if the country has an open trade regime. The attractive power of low tax rates is weakened if the country has a more restrictive trade regime. Approximately 19 percent of U.S. capital abroad would be in a different location in the absence of any effect of taxes.

Suggested Citation

  • Grubert, Harry & Mutti, John, 2000. "Do Taxes Influence Where U.S. Corporations Invest?," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(4), pages 825-840, December.
    • Handle: RePEc:ntj:journl:v:53:y:2000:i:4:p:825-40
    DOI: 10.17310/ntj.2000.4.02
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    3. Peter Hooper & J. David Richardson, 1991. "International Economic Transactions: Issues in Measurement and Empirical Research," NBER Books, National Bureau of Economic Research, Inc, number hoop91-1.
    4. Martin Feldstein, 1987. "The Effects of Taxation on Capital Accumulation," NBER Books, National Bureau of Economic Research, Inc, number feld87-1.
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