The Effects of Bilateral Tax Treaties on U.S. FDI Activity

University of Oregon Economics Working Paper No. 2001-14

42 Pages Posted: 2 Oct 2003

See all articles by Bruce A. Blonigen

Bruce A. Blonigen

University of Oregon - Department of Economics; National Bureau of Economic Research (NBER)

Ronald B. Davies

University College Dublin (UCD)

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2001

Abstract

The effects of bilateral tax treaties on FDI activity have been unexplored, despite significant ongoing activities by countries to negotiate and ratify these treaties. This paper estimates the impact of bilateral tax treaties using both U.S. inbound and outbound FDI over the period 1966-1992. Robust to a wide variety of alternative specifications, we find no evidence that bilateral tax treaties increase FDI activity, contrary to OECD-stated goals for such treaties. In fact, our estimates suggest that for our sample there may instead be economically and statistically significant negative effects of new bilateral tax treaties on U.S. outbound activity to the tax treaty partner country. These findings are consistent with claims that tax treaties are not intended to improve capital flows, but rather to reduce tax evasion through transfer pricing practices or otherwise.

Keywords: Foreign direct investment, tax treaties, multinational corporations

JEL Classification: F21, F23, H25

Suggested Citation

Blonigen, Bruce A. and Davies, Ronald B., The Effects of Bilateral Tax Treaties on U.S. FDI Activity (January 1, 2001). University of Oregon Economics Working Paper No. 2001-14, Available at SSRN: https://ssrn.com/abstract=445980 or http://dx.doi.org/10.2139/ssrn.445980

Bruce A. Blonigen (Contact Author)

University of Oregon - Department of Economics ( email )

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Ronald B. Davies

University College Dublin (UCD) ( email )

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