Tax Policy and Foreign Direct Investment in the United States

This paper provides an analysis of and some evidence relating to the influence of domestic tax policy on foreign direct investment in the United States. First, the potential effects of tax policy are analyzed and found to be very different from those previously recognized. Then, an empirical analysis is performed which, despite substantial measurement difficulties, suggests that foreign investment in the U.S. is strongly affected, in the manner predicted on the basis of the model, by changes in domestic tax policy.