"Basket" Cases: International Joint Ventures After the Tax Reform Act of 1986 / Mihir A. Desai, James R. Hines, Jr..

Format:

Book

Author/Creator:

Desai, Mihir A.

Contributor:

National Bureau of Economic Research.

Hines, James R, Jr.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5755.

NBER working paper series no. w5755

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Basket Cases

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

This paper examines the impact of the Tax Reform Act of 1986 (TRA) on international joint ventures by American firms. The evidence suggests that the TRA had a significant effect on the organizational form of U.S. business activity abroad. The TRA mandates the use of separate credits on income received from foreign corporations owned 50% or less by Americans. This limitation on worldwide averaging greatly reduces the attractiveness of joint ventures to American investors, particularly ventures in low-tax foreign countries. Aggregate data indicate that U.S. participation in international joint ventures fell sharply after 1986. The decline in U.S. joint venture activity is most pronounced in low-tax countries, which is consistent with the incentives created by the TRA. Moreover, joint ventures in low-tax countries use more debt and pay greater royalties to their U.S. parents after 1986, which reflects their incentives to economize on dividend payments

Notes:

Print version record

September 1996.