Taxes and the Form of Ownership of Foreign Corporate Equity

49 Pages Posted: 27 Jun 2007 Last revised: 16 Nov 2015

See all articles by Roger H. Gordon

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics; Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Joosung Jun

Yale University - Department of Economics

Date Written: September 1992

Abstract

Investors can achieve international diversification in their portfolios not only through purchasing foreign equity directly but also through investing in domestic firms which then invest abroad. Yet these alternative approaches are taxed very differently. A number of countries have also imposed various forms of capital controls restricting direct purchases of foreign equity. This paper estimates the degree to which these tax and nontax factors have affected the relative use of these two alternative methods of international diversification, using data on investment in the U.S. by investors from each of ten other countries during the period 1980-1989. While the composition of equity flows differs dramatically across countries, taxes do not appear to play an important role in the data in explaining this variation. Part of the explanation appears to be that tax distortions adjust endogenously to avoid large scale portfolio investments abroad. With the increasing integration of capital markets and the easing of capital controls in many countries, we have seen and expect to continue to see reductions in the tax distortions affecting the form of international capital flows.

Suggested Citation

Gordon, Roger H. and Jun, Joosung, Taxes and the Form of Ownership of Foreign Corporate Equity (September 1992). NBER Working Paper No. w4159. Available at SSRN: https://ssrn.com/abstract=990288

Roger H. Gordon (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
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Harvard University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Joosung Jun

Yale University - Department of Economics

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

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