Altered States: Taxes and the Location of Foreign Direct Investment in America

AMERICAN ECONOMIC REVIEW, Vol. 86, No. 5, December 1996

Posted: 25 Feb 1997

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Abstract

This paper compares the distribution between U.S. states of investment from countries that grant foreign tax credits with investment from all other countries. The ability to apply foreign tax credits against home-country tax liabilities reduces an investor's incentive to avoid high-tax foreign locations. State corporate tax rate differences of 1 percent are associated with differences of 9-11 percent between the investment shares of foreign tax credit investors and the investment shares of all others, suggesting that state taxes significantly influence the pattern of foreign direct investment in the United States.

JEL Classification: H87, H73, H25, F23

Suggested Citation

Hines, James Rodger, Altered States: Taxes and the Location of Foreign Direct Investment in America. AMERICAN ECONOMIC REVIEW, Vol. 86, No. 5, December 1996. Available at SSRN: https://ssrn.com/abstract=4680

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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