NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Credit and Deferral as International Investment Incentives

James R. Hines Jr.

NBER Working Paper No. 4191 (Also Reprint No. r1927)
Issued in October 1992
NBER Program(s):   ITI   PE

The US government taxes the foreign income of American firms, using a system that grants credits for foreign taxes paid and permits tax deferral for unrepatriated income. This paper shows that the tax system encourages firms to restrict their equity stakes in new foreign investments, and to finance their new investments with considerable debt. These incentives are strongest for US investments in low-tax foreign countries, and exist even when transfer price regulation effectively limits the profit rates foreign subsidiaries can earn. The behavior of US multinationals in 1984 appears to reflect these tax incentives.

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Document Object Identifier (DOI): 10.3386/w4191

Published: Journal of Public Economics, Vol. 55, no. 2, pp. 323-347, October 1994 citation courtesy of

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