The Flight Paths of Migratory Corporations

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Abstract
American corporations earn a large and growing share of their profits from their foreign operations. U.S. law taxes American corporations on their worldwide income, and in so doing may discourage new firms from making the United States their primary residence while encouraging American corporations to leave the country for offshore tax havens. This paper evaluates the incentives American firms face in considering whether to relocate their site of legal residence abroad. The case of McDermott Inc., an American multinational that reorganized as a Panamanian corporation in 1982, is considered in detail. Aggregate data suggest that firms' incentives to follow McDermott in relocating offshore rose steadily through the 1980s until passage of the Tax Reform Act of 1986, which substantially reduced the payoff from relocating.