TY  - JOUR
AU  - Cummins,Jason G.
AU  - Hubbard,R. Glenn
TI  - The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4703
PY  - 1994
Y2  - April 1994
UR  - http://www.nber.org/papers/w4703
L1  - http://www.nber.org/papers/w4703.pdf
N1  - Author contact info:
Jason Cummins
Brevan Howard Asset Management
Suite 250
1776 Eye Street, NW
Washington, DC 20006
Tel: 202-835-6401
E-Mail: jason.cummins@brevanhoward.com

R. Glenn Hubbard
Graduate School of Business
Columbia University, 101 Uris Hall
3022 Broadway
New York, NY  10027
Tel: 212/854-3493
Fax: 212/864-6184
E-Mail: rgh1@columbia.edu, ws2187@columbia.edu
M1  - published as Jason Cummins, R. Glenn Hubbard. "The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data," in Martin Feldstein, James R. Hines Jr., R. Glenn Hubbard, "The Effects of Taxation on Multinational Corporations" University of Chicago Press (1995)

M2  - featured in NBER digest on 1994-07-01
AB  - Understanding the determinants of foreign direct investment (FDI) is important for analyzing capital flows and the industrial organization of multinational firms.  Most empirical studies of FDI, however, have focused on case studies of nontax factors in overseas investment decisions or on discerning reduced-form relationships between some measure of FDI and variables relating to nontax and tax aspects of the investment decision.  In this paper, we examine the effects of taxation on FDI using previously unexplored (for this purpose) panel data on FDI by subsidiaries of U.S. multinational firms collected by Compustat's geographic segment file project.  These firm- level data contain information on new capital investment overseas which enable us to measure tax influences on FDI more precisely and allow us to focus on structural models of subsidiaries' investment decision.  Our empirical results cast significant doubt on the simplest notion that 'taxes don't matter' for U.S. firms' FDI decisions.  Tax parameters influence FDI in precisely the way indicated by neoclassical models.  Our results also lend support to the application of the 'tax capitalization' model to the study of dividend repatriation and foreign direct investment decisions.
ER  -