The Effect of the Tax Cuts and Jobs Act on Foreign Investment of U.S. Multinational Corporations

61 Pages Posted: 28 Oct 2022

See all articles by David M. P. Samuel

David M. P. Samuel

Singapore Management University - School of Accountancy

Date Written: October 22, 2022

Abstract

This study examines the effect of the 2017 Tax Cuts and Jobs Act (TCJA) on capital investment, labor investment, and the productivity of foreign subsidiaries of U.S. multinational corporations (MNCs). Proponents of the TCJA argue it decreased foreign investment by leveling the playing field between U.S. MNCs and foreign-owned corporations. However, policymakers are currently debating international tax reform, arguing that the TCJA incentivizes foreign investment. My study informs this debate by providing empirical evidence on the TCJA’s effect on foreign investment and productivity. Using a difference-in-differences design, I find that after the TCJA, U.S.-owned foreign subsidiaries invest 13.1 percent less in capital and 1.3 percent less in labor relative to subsidiaries owned by non-U.S. MNCs. I also find these reductions are positively associated with subsidiary-level productivity, suggesting that the TCJA alleviates inefficiencies of the previous tax regime.

Keywords: tax reform, Tax Cuts and Jobs Act (TCJA), international taxation, investment, productivity

JEL Classification: H25, F23, G31, D24

Suggested Citation

Samuel, David, The Effect of the Tax Cuts and Jobs Act on Foreign Investment of U.S. Multinational Corporations (October 22, 2022). Available at SSRN: https://ssrn.com/abstract=4255473 or http://dx.doi.org/10.2139/ssrn.4255473

David Samuel (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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