Taxation and the Birth of Foreign Subsidiaries

Hans-Werner Sinn

NBER Working Paper No. 3519
Issued in November 1990
NBER Program(s):   PE

The paper studies the influence of tax policy on foreign direct investment with a particular emphasis on immature subsidiaries. Among other things it shows that taxes on repatriations reduce the subsidiary's "birth weight", that lump sum taxes reduce its cost of capital, and that the possibility of deferral increases this cost. The paper rejects the popular weighted average specification of the subsidiary's cost of capital.

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Document Object Identifier (DOI): 10.3386/w3519

Published: Herberg, Horst and Ngo Van Long (eds.) Trade, welfare, and economic policies: Papers in Honour of Murray C . Kemp. Ann Arbor: Michigan University Press, 1993.