Has U.S. Investment Abroad Become More Sensitive to Tax Rates?

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Abstract
Measuring the extent to which host-country taxes affect the allocation of multinational corporations' foreign direct investment across foreign jurisdictions has been an active area of research in international taxation. Using data from the U.S. Department of the Treasury corporate tax return files for 1984 and 1992, this chapter addresses two related questions. The first question is how sensitive U.S. firms' investment location decisions are to tax rate differences across countries. The second question is whether the location of investment abroad by U.S. firms has become more sensitive to tax rate differences across countries. A finding that investment location decisions have become more sensitive to tax rates would be consistent with the view that technological advances and the loosening of trade restrictions and capital controls have in recent years increased the ease with which capital can cross national borders. If different locations became closer substitutes for the location of production, it would not be surprising if investment location decisions became increasingly responsive to tax considerations.

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