Corporate tax rates and foreign direct investment in the United States

Abstract

A significant research effort has been directed at establishing the determinants of foreign direct investment (FDI), with taxation policy identified as an important factor. However, the empirical literature has been limited in several respects, with most work focused exclusively on host country tax regimes. This paper seeks to extend the boundaries of FDI empirical inquiry by using a panel of nine investing tax exemption and tax credit countries over the period 1982-2000, constituting more than 85% of total US FDI inflows, and incorporating home country tax rates to analyse two as yet unanswered questions. First, are corporate income tax rates an important determinant of FDI in the US? Secondly, do investors from tax credit countries differ significantly in their tax response relative to those from tax exemption countries?