IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/39389.html
   My bibliography  Save this paper

U.S. tax policy and the overseas activities of U.S. multinational corporations: a quantitative assessment

Author

Listed:
  • Goodspeed, Timothy
  • Frisch, Daniel

Abstract

We present 1984 data on U.S. multinationals, their foreign operations, and repatriations received from their controlled foreign corporations (CFCs), and explore the ramifications of the 1986 Tax Reform Act’s lowering of the corporate tax rate from 46 to 34 percent. We identify and quantify the effects on investment and financial decisions of U.S. multinationals that are attributed to the foreign tax credit and deferral. We find that the lowering of the rate has a large impact on excess credit positions, present evidence indicating that the composition of foreign source income has an important effect on such positions, find that the violation of capital export neutrality is likely to be widespread, and explore the impact of repealing deferral. The data relating to financial decisions shows mixed support for current theories.

Suggested Citation

  • Goodspeed, Timothy & Frisch, Daniel, 1989. "U.S. tax policy and the overseas activities of U.S. multinational corporations: a quantitative assessment," MPRA Paper 39389, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:39389
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/39389/1/MPRA_paper_39389.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. James R. Hines, Jr., 1994. "No Place like Home: Tax Incentives and the Location of R&D by American Multinationals," NBER Chapters, in: Tax Policy and the Economy, Volume 8, pages 65-104, National Bureau of Economic Research, Inc.
    2. Joel Slemrod, 1990. "The Impact of the Tax Reform Act of 1986 on Foreign Direct Investment to and from the United States," NBER Working Papers 3234, National Bureau of Economic Research, Inc.
    3. Roy D.. Hogg & Jack Mintz & Joel Slemrod, 1993. "Impacts of Canadian and U.S. Tax Reform on the Financing of Canadian Subsidiaries of U.S. Parents," NBER Chapters, in: Studies in International Taxation, pages 47-76, National Bureau of Economic Research, Inc.
    4. James R. Hines, Jr. & R. Glenn Hubbard, 1990. "Coming Home to America: Dividend Repatriations by US Multinationals," NBER Chapters, in: Taxation in the Global Economy, pages 161-208, National Bureau of Economic Research, Inc.
    5. Hines, James Jr., 1994. "Credit and deferral as international investment incentives," Journal of Public Economics, Elsevier, vol. 55(2), pages 323-347, October.
    6. Rosanne Altshuler, 1995. "Do Repatriation Taxes Matter? Evidence from the Tax Returns of U.S. Multinationals," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 253-276, National Bureau of Economic Research, Inc.
    7. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 149-182.
    8. Rosanne Altshuler & Jack Mintz, 1995. "U.S. interest-allocation rules: Effects and policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(1), pages 7-35, February.
    9. Rosanne Altshuler & T. Scott Newlon & Joel Slemrod, 1993. "The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U. S . Multinational Corporations," NBER Chapters, in: Studies in International Taxation, pages 77-116, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fritz Foley, C. & Hartzell, Jay C. & Titman, Sheridan & Twite, Garry, 2007. "Why do firms hold so much cash? A tax-based explanation," Journal of Financial Economics, Elsevier, vol. 86(3), pages 579-607, December.
    2. Desai, Mihir A. & Foley, C. Fritz & Hines, James R. Jr., 2001. "Repatriation Taxes and Dividend Distortions," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 829-851, December.
    3. Michael Devereux & Rachel Griffith, 1998. "The taxation of discrete investment choices," IFS Working Papers W98/16, Institute for Fiscal Studies.
    4. Beyer, Brooke & Downes, Jimmy & Rapley, Eric T., 2017. "Internal capital market inefficiencies, shareholder payout, and abnormal leverage," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 39-57.
    5. Chisik, Richard & Davies, Ronald B., 2004. "Asymmetric FDI and tax-treaty bargaining: theory and evidence," Journal of Public Economics, Elsevier, vol. 88(6), pages 1119-1148, June.
    6. Nora Paulus & Patrice Pieretti & Benteng Zou, 2021. "Is a Dynamic Approach to Tax Games Relevant?," Annals of Economics and Statistics, GENES, issue 144, pages 113-138.
    7. Dalila NICET-CHENAF & Eric ROUGIER, 2007. "Foreign Direct Investment: a comparative study of the attraction of Moroccan and Tunisian economies (In French)," Cahiers du GREThA (2007-2019) 2007-02, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    8. Rainer Niemann, 2004. "Asymmetric Taxation and Cross-Border Investment Decisions," CESifo Working Paper Series 1219, CESifo.
    9. Husam Rjoub & Mehmet Aga & Ahmad Abu Alrub & Murad Bein, 2017. "Financial Reforms and Determinants of FDI: Evidence from Landlocked Countries in Sub-Saharan Africa," Economies, MDPI, vol. 5(1), pages 1-12, January.
    10. Gu, Tiantian, 2017. "U.S. multinationals and cash holdings," Journal of Financial Economics, Elsevier, vol. 125(2), pages 344-368.
    11. Jarkko Harju & Seppo Kari, 2017. "Dividend Taxes and Decisions of MNEs: Evidence from a Finnish Tax Reform," CESifo Economic Studies, CESifo Group, vol. 63(1), pages 45-77.
    12. Joosung Jun, 1994. "How taxation affects foreign direct investment (country - specific evidence)," Policy Research Working Paper Series 1307, The World Bank.
    13. Louis T., Jr. Wells & Nancy J. Allen & Jacques Morisset & Neda Pirnia, 2001. "Using Tax Incentives to Compete for Foreign Investment : Are They Worth the Costs?," World Bank Publications - Books, The World Bank Group, number 13979.
    14. Seppo Kari & Hanna Karikallio & Jukka Pirttilä, 2008. "Anticipating Tax Changes: Evidence from the Finnish Corporate Income Tax Reform of 2005," Fiscal Studies, Institute for Fiscal Studies, vol. 29(2), pages 167-196, June.
    15. Hong, Seiwoong & Lee, Junyong & Oh, Frederick Dongchuhl & Shin, Donglim, 2023. "Religion and foreign direct investment," International Business Review, Elsevier, vol. 32(1).
    16. Hines, James R, Jr, 1996. "Altered States: Taxes and the Location of Foreign Direct Investment in America," American Economic Review, American Economic Association, vol. 86(5), pages 1076-1094, December.
    17. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 149-182.
    18. Peter Egger & Mario Larch & Michael Pfaffermayr & Hannes Winner, 2006. "The impact of endogenous tax treaties on foreign direct investment: theory and evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(3), pages 901-931, August.
    19. Seppo Kari & Jouko Ylä-Liedenpohja, 2005. "Effects of an Equalization Tax on Multinational Investments and Transfer Pricing," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 45-61, March.
    20. Hasegawa, Makoto & Kiyota, Kozo, 2017. "The effect of moving to a territorial tax system on profit repatriation: Evidence from Japan," Journal of Public Economics, Elsevier, vol. 153(C), pages 92-110.

    More about this item

    Keywords

    tax policy; multinationals; deferral; foreign tax credits; controlled foreign corporations; tax reform; 1986 Tax Reform Act;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:39389. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.