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

47 Pages Posted: 28 Dec 2006 Last revised: 20 Jul 2010

Multiple version iconThere are 2 versions of this paper

Date Written: July 1993

Abstract

This paper examines the effect of taxation on foreign investment and on business location within the United States. The idea is to compare the inter-state distribution of investments from certain foreign countries (those with foreign tax credit systems) with the distribution of investments from other countries. Investors from countries with foreign tax credit systems receive home-country tax credits for income taxes paid to US states, so they are less likely than are other investors to avoid investing in high-tax states. The results indicate that 1% differences in state corporate tax rates are associated with 7-9% differences 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 US.

Suggested Citation

Hines, James Rodger, Altered States: Taxes and the Location of Foreign Direct Investment in America (July 1993). NBER Working Paper No. w4397. Available at SSRN: https://ssrn.com/abstract=480224

James Rodger Hines (Contact Author)

University of Michigan ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

NBER

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Cambridge, MA 02138
United States

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