TY  - JOUR
AU  - Desai,Mihir A.
AU  - Hines,James R., Jr.
TI  - "Basket" Cases: International Joint Ventures After the Tax Reform Act of 1986
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5755
PY  - 1996
Y2  - September 1996
UR  - http://www.nber.org/papers/w5755
L1  - http://www.nber.org/papers/w5755.pdf
N1  - Author contact info:
Mihir A. Desai
Graduate School of Business Administration
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6693
Fax: 617/496-6592
E-Mail: mdesai@hbs.edu

James R. Hines
Department of Economics
University of Michigan
343 Lorch Hall
611 Tappan Street
Ann Arbor, MI  48109-1220
Tel: 734/764-2320
Fax: 734/764-2769
E-Mail: jrhines@umich.edu
M2  - featured in NBER digest on 1997-05-01
AB  - This paper examines the impact of the Tax Reform Act of 1986 (TRA) on international joint ventures by American firms.  The evidence suggests that the TRA had a significant effect on the organizational form of U.S. business activity abroad.  The TRA mandates the use of separate credits on income received from foreign corporations owned 50% or less by Americans.  This limitation on worldwide averaging greatly reduces the attractiveness of joint ventures to American investors, particularly ventures in low-tax foreign countries. Aggregate data indicate that U.S. participation in international joint ventures fell sharply after 1986.  The decline in U.S. joint venture activity is most pronounced in low-tax countries, which is consistent with the incentives created by the TRA. Moreover, joint ventures in low-tax countries use more debt and pay greater royalties to their U.S. parents after 1986, which reflects their incentives to economize on dividend payments
ER  -