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http://ssrn.com/abstract=4460
 
 

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"Basket" Cases: International Joint Ventures after the Tax Reform Act of 1986


Mihir A. Desai


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

James R. Hines Jr.


University of Michigan; NBER

September 1996

NBER Working Paper No. w5755

Abstract:     
This paper examines the impact of the Tax Reform Act of 1986 (TRA) on international joint ventures by American firms. The evidence suggests that the TRA had a significant effect on the organizational form of U.S. business activity abroad. The TRA mandates the use of separate credits on income received from foreign corporations owned 50% or less by Americans. This limitation on worldwide averaging greatly reduces the attractiveness of joint ventures to American investors, particularly ventures in low-tax foreign countries. Aggregate data indicate that U.S. participation in international joint ventures fell sharply after 1986. The decline in U.S. joint venture activity is most pronounced in low-tax countries, which is consistent with the incentives created by the TRA. Moreover, joint ventures in low-tax countries use more debt and pay greater royalties to their U.S. parents after 1986, which reflects their incentives to economize on dividend payments

Number of Pages in PDF File: 43

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Date posted: November 26, 1996  

Suggested Citation

Desai, Mihir A. and Hines Jr., James R., "Basket" Cases: International Joint Ventures after the Tax Reform Act of 1986 (September 1996). NBER Working Paper No. w5755. Available at SSRN: http://ssrn.com/abstract=4460

Contact Information

Mihir A. Desai
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
James Rodger Hines (Contact Author)
University of Michigan ( email )
625 South State Street
Ann Arbor, MI 48109-1215
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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