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Do Strong Fences Make Strong Neighbors?

27 Pages Posted: 1 Aug 2010 Last revised: 13 Mar 2011

Mihir A. Desai

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

Dhammika Dharmapala

University of Chicago Law School

Date Written: June 1, 2010


Many features of U.S. tax policy towards multinational firms – including the governing principle of capital export neutrality, the byzantine system of expense allocation, and anti-inversion legislation – reflect the intuition that building “strong fences” around the United States advances American interests. This paper examines the interaction of a strong fences policy with the increasingly important global markets for corporate residence, corporate control and corporate equities. These markets provide opportunities for entrepreneurs, managers and investors to circumvent a strong fences policy. The paper provides simple descriptive evidence of the growing importance of these markets and considers the implications for U.S. tax policy.

Keywords: International Taxation, Initial Public Offerings, Mergers and Acquisitions, Foreign Direct Investment, Foreign Portfolio Investment

JEL Classification: H25

Suggested Citation

Desai, Mihir A. and Dharmapala, Dhammika, Do Strong Fences Make Strong Neighbors? (June 1, 2010). Illinois Public Law Research Paper No. 10-22. Available at SSRN: or

Mihir Desai

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)

Dhammika Dharmapala (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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