search query: @indexterm DIVERSIFICATION / total: 686
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| Author: | Desai, M.A. Dharmapala, D. |
| Title: | Taxes, institutions and foreign diversification opportunities |
| Journal: | Journal of Public Economics
2009 : JUN, VOL. 93:5-6, p. 703-714 |
| Index terms: | foreign investment direct investment investor protection portfolio investment taxation diversification |
| Freeterms: | FDI |
| Language: | eng |
| Abstract: | Foreign diversification opportunities can be accessed by investors either through foreign portfolio investment (FPI) or foreign direct investment (FDI). The worldwide tax regime employed by the U.S. potentially distorts this choice by penalizing FDI, relative to FPI, in low-tax countries. On the other hand, weak investor protection in foreign countries may increase the value of control, creating an incentive to use FDI rather than FPI. By combining data on U.S. outbound FPI and FDI, this paper analyzes whether the composition of U.S. outbound capital flows reflects these incentives to bypass home and host country institutional regimes. It is suggested that the residual tax on U.S. multinational firms' (MNEs) foreign earnings skews the composition of outbound capital flows. Investor protection also appear to shape portfolio choices. |
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