Host-country governance, tax treaties and US direct investment abroad |
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Authors: | Henry J Louie Donald J Rousslang |
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Institution: | (1) Office of Tax Analysis, US Department of Treasury, 15000 Pennsylvania Ave. NW, Washington, DC 20220, USA;(2) Department of Taxation, State of Hawaii, Honolulu, USA |
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Abstract: | We investigate how the quality of the host-country governance and a bilateral US income tax treaty affect the rates of return
that US companies require on their foreign direct investment (FDI). Using indexes of corruption and political instability,
we find that poor governance causes the companies to require significantly higher rates of return. This lends support to earlier
authors who have concluded that poor governance discourages both local investment and inward FDI. After accounting for the
quality of host-country governance, however, no evidence could be found that an income tax treaty has any effect on the required
rates of return.
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Keywords: | Foreign direct investment Corruption Income tax treaties |
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