Taxation and Foreign Direct Investment in the United States: A Reconsideration of the Evidence

48 Pages Posted: 5 Jul 2004 Last revised: 25 Aug 2010

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Kevin A. Hassett

American Enterprise Institute (AEI)

Date Written: November 1991

Abstract

Foreign direct investment in the United States boomed in the late 1980s. Some have attributed this rise to the Tax Reform Act of 1986, which by discouraging investment by domestic firms may have provided opportunities for foreign firms not as strongly affected by the U.S. tax changes. We challenge this view on theoretical and empirical grounds, finding that: (1) While the argument applies to new capital investment, the boom was primarily in mergers and acquisitions; (2) While the argument holds primarily for investment in equipment, there was no shift toward the acquisition of equipment-intensive firms, and (3) The FDI boom in the U.S. was really part of a worldwide FDI boom ? the U.S. share of outbound FDI from other countries did not increase during the period 1987-9.

Suggested Citation

Auerbach, Alan Jeffrey and Hassett, Kevin A., Taxation and Foreign Direct Investment in the United States: A Reconsideration of the Evidence (November 1991). NBER Working Paper No. w3895. Available at SSRN: https://ssrn.com/abstract=375303

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Kevin A. Hassett

American Enterprise Institute (AEI) ( email )

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202.862.7177 (Fax)

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