International Taxation

Article excerpt

On November 14 and 15, 1997, the NBER held a "Conference on International Taxation" in Cambridge. The conference papers report the results of research developed as part of the larger NBER project on International Capital Flows sponsored by the Center for International Political Economy. Organized by James R. Hines, Jr. of NBER and the University of Michigan, the two-day gathering included the following presentations:

Rosanne Altshuler, NBER and Rutgers University; and Harry Grubert and T. Scott Newlon, U.S. Department of the Treasury, "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?"

Discussant: Jack Mintz, University of Toronto

Deborah L. Swenson, NBER and University of California, Davis, "Transaction Type and the Effect of Taxes on the Distribution of Foreign Direct Investment in the U.S."

Discussant: William Randoph, U.S. Department of the Treasury Julie Collins, Douglas Shackelford, and John R.M. Hand, University of North Carolina, "Valuing Deferral: The Effect of Permanently Reinvested Foreign Earnings on Stock Prices"

Discussant: Kevin A. Hassett, American Enterprise Institute

James R. Hines, Jr., and Adam B. Jaffe, NBER and Brandeis University, "International Taxation and the Location of Inventive Activity"

Discussant: Austan Goolsbee, NBER and University of Chicago

Jason Cummins, New York University, "Taxation and the Growth of U.S. Multinational Corporations"

Discussant: Samuel S. Kortum, NBER and Boston University

Shang-Jin Wei, NBER and Harvard University, "Irritants to International Direct Investment"

Discussant: Bernard Yeung, University of Michigan

Kimberly Clausing, Reed College, "The Impact of Transfer Pricing on Intrafirm Trade"

Discussant: Deen Kelmsley, Columbia University

Harry Grubert, "Tax Planning by Companies and Tax Competition by Governments: Is There Evidence of Changes in Behavior?"

Discussant: Joel B. Slemrod, NBER and University of Michigan

James R. Hines, Jr., "Tax Sparing and Direct Investment in Developing Countries"

Discussant: Timothy Goodspeed, Hunter College

Altshuler, Grubert, and Newlon use data from the U.S. Treasury corporate tax files for 1984 and 1992 to address two related questions concerning U.S. multinational corporations' investment decisions. First, how sensitive to differences in tax rates across countries are decisions about investment location? Second, have investment location choices become more sensitive to differences in host country tax rates? The authors relate real capital held in manufacturing affiliates of U.S. firms in 58 countries to tax rat6e variables and countries' measures of nontax characteristics. Using these two years of data allows them to control for unmeasured country fixed effects. For investment abroad, they find large estimated tax elasticities of real capital to aftertax rates of return of about 1.5 in 1984 and of close to 3 in 1992. This increase suggests that the allocation of real capital abroad might have grown more sensitive to differences in host country taxes. These results are consistent with the increase in international mobility of capital and globalization of production.

Swenson analyzes a set of foreign investment transactions completed between 1984 and 1994 to determine how U.S. state taxes influence the interstate distribution of foreign investment. The unique element of the transactions data is that it identifies the types of investments that were undertaken by foreign investors; transactions are identified as new plants, plant expansions, mergers and acquisitions, joint ventures, and equity increases. The results indicate there are large differences in the tax responsiveness of these different transaction types. New plants and plant expansions appear to be deterred by high state taxes, while there is a positive correlation between high state taxes and the probability that a foreign investor chooses to perform an acquisition in a state. …