NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Impact of the Tax Reform Act of 1986 on Foreign Direct Investment to and from the United States

Joel Slemrod

NBER Working Paper No. 3234
Issued in January 1990
NBER Program(s):   PE

Since the passage of the Tax Reform Act of 1986, foreign direct investment (FDI) both into and from the United States has surged. Inward FDI reached an all-time high of $58.4 billion in 1988, continuing a secular increase that began in the late 1970's. Outward FDI also reached an all-time high of $44.5 billion in 1987 which, contrary to the case of inward FDI, represented a sharp turnaround from the situation of the early 1980's. Outward FDI in 1988, though, fell back to $17.5 billion, approximately its level in 1985 and, after adjusting for capital gains and tax haven transactions, is lower as a fraction of GNP than it was in the late 1970's. This paper addresses to what extent tax reform has been responsible for the surge in FDI, and how it has affected the mix of investment, its financing, and its timing. The link between tax policy and aggregate FDI is difficult to make, both because the net incentive effect of several new provisions is not clear and because it is impossible, with less than three years of post-TRA86 data, to sort out any tax effect from other influences on FDI. Several aspects of recent FDI performance are, however, consistent with the effect of TRA86 on incentives, including the strength of outward FDI to low-tax countries, and the increase in net transfers of debt abroad. For inward FDI, the predominance of Japan and U.K. investment, the relative decline of debt transfers, and the increased reported rate of return are consistent with changed tax incentives.

download in pdf format
   (453 K)

download in djvu format
   (324 K)

email paper

This paper is available as PDF (453 K) or DjVu (324 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3234

Published: Slemrod, Joel (ed.) Do Taxes Matter? The Impact of the Tax Reform Act of 1986. Cambridge, MA: The MIT Press, 1990.

Users who downloaded this paper also downloaded these:
Slemrod Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison
Blonigen and Davies w8834 Do Bilateral Tax Treaties Promote Foreign Direct Investment?
Cummins and Hubbard The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data
Hausman and Poterba w2120 Household Behavior and the Tax Reform Act of 1986
Auerbach, Hassett, and Slemrod Taxation and Foreign Direct Investment in the United States: A Reconsideration of the Evidence
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us