TY  - JOUR
AU  - Jun,Joosung
TI  - What is the Marginal Source of Funds for Foreign Investment?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3064
PY  - 1989
Y2  - August 1989
UR  - http://www.nber.org/papers/w3064
L1  - http://www.nber.org/papers/w3064.pdf
N1  - Author contact info:
Joosung Jun
E-Mail: jjun@nber.org
AB  - This paper analyzes the marginal source of funds for foreign investment using both aggregate and micro data on the intrafirm transactions of  U.S. international firms. Tax arbitrage regarding the form and timing of transactions, combined with risks involved with foreign operations and the desire of the parent to control subsidiaries, suggests that parent transfers provide the marginal source of funds for most foreign investment. Our conclusion is consistent with the seemingly puzzling evidence that some subsidiaries have positive dividends and transfers simultaneously despite the associated tax penalties, and others neither pay dividends nor receive transfers. Our analysis and empirical evidence are in sharp conflict with the widely-held tax capitalization view that retained subsidiary earnings are the marginal source of financing foreign investment.
ER  -