Abstract This paper extends the literature on the effect of taxes on foreign investments in two ways. First, it shows that the effect of tax depreciation on investment decisions depends jointly on whether the home country uses a territorial or worldwide tax system, and whether the investment is financed from accumulated foreign earnings or flew capital. Second, the paper examines an investment decision in a setting in which technological improvements create a benefit to postponing the investment in a positive net present value project. The conventional wisdom that repatriation taxes are neutral with respect to investments financed by the foreign subsidiary does not hold in this setting. A subsidiary with earnings subject to repatriation taxes will exhibit less patience than a subsidiary not subject to repatriation taxes.
Richard C. Sansing (Mon,) studied this question.