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International Taxation and Multinational Activity$
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James R. Hines

Print publication date: 2001

Print ISBN-13: 9780226341736

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226341750.001.0001

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Transaction Type and the Effect of Taxes on the Distribution of Foreign Direct Investment in the United States

Transaction Type and the Effect of Taxes on the Distribution of Foreign Direct Investment in the United States

Chapter:
(p.89) 4 Transaction Type and the Effect of Taxes on the Distribution of Foreign Direct Investment in the United States
Source:
International Taxation and Multinational Activity
Author(s):

Deborah L. Swenson

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226341750.003.0005

Most analyses of foreign investment rely on aggregate data such as flow of funds, the volume of new enterprises in the United States, or the operations of foreign subsidiaries in the United States. There are at least two reasons that treatment of firm issues is warranted in the analysis of the effects of taxes on the distribution of foreign investment. First, any set of tax rules may lead to different consequences for multinational corporations that are in different positions. Second, various investment transactions will be subject to differing degrees of investment persistence. Investment persistence is the tendency of firms to select locations that have already been selected by their predecessors in the industry, and it may be driven by either agglomeration externalities or specific factor endowments. This chapter investigates how the tax responsiveness of foreign direct investment differs across investment types using individual firm investment transactions data. It examines the potency of tax effects across investment types based on transaction type: merger/acquisition, plant expansion, new plant, joint venture, or equity increase.

Keywords:   foreign direct investment, taxes, transactions, United States, investment persistence, agglomeration, multinational corporations, plant expansion, joint venture, equity increase

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