Tax Policy and the Efficiency of U.S. Direct Investment Abroad

Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.

NBER Working Paper No. 17202
Issued in July 2011
NBER Program(s):Corporate Finance, International Trade and Investment, Public Economics

Deferral of U.S. taxes on foreign source income is commonly characterized as a subsidy to foreign investment, as reflected in its inclusion among "tax expenditures" and occasional calls for its repeal. This paper analyzes the extent to which tax deferral and other policies inefficiently subsidize U.S. direct investment abroad. Investments are dynamically inefficient if they consistently generate fewer returns to investors than they absorb in new investment funds. From 1982-2010, repatriated earnings from foreign affiliates exceeded net capital investments by $1.1 trillion in 2010 dollars; and from 1950-2010, repatriated earnings and net interest from foreign affiliates exceeded net equity investments and loans by $2.1 trillion in 2010 dollars. By either measure, cash flows received from abroad exceeded 160 percent of net investments, implying that foreign investment over these periods was dynamically efficient.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17202

Published: Desai, Mihir A. & Foley, C. Fritz & Hines, James R. Jr., 2011. "Tax Policy And The Efficiency Of U.S. Direct Investment Abroad," National Tax Journal, National Tax Association, vol. 64(4), pages 1055-82, December . citation courtesy of

Users who downloaded this paper also downloaded* these: