As the global economy continues to evolve, events such as the
unification of European markets have prompted economists and
policymakers to consider whether the current system of taxing income is
inconsistent with the trend toward liberalized world financial flows and
increased international competition. To help assess the effectiveness of
existing tax policies and incentives, this volume presents new research
on how taxes affect the investment and financing decisions of
multinationals today. The authors examine international financial
management, business investment, and international income shifting. The
first three papers focus on financial management. Chapter 1 analyzes how
tax and non-tax factors affect the relative importance of portfolio
equity investments versus foreign direct investments and finds that the
composition of equity flows differs dramatically according to tax
differences. The authors of the second chapter look at the impact of
U.S. and Canadian tax reforms on the financing of U.S. multinationals
operating in Canada. Chapter 3 uses new data from 1986 corporate income
tax returns to examine the effects of taxes on decisions by foreign
subsidiaries to repatriate dividends to U.S. parent corporations. The
next three chapters address international business investment. The
authors of Chapter 4 consider why most models fail to show how tax
policy affects foreign direct investment, and they offer improved
models. Chapter 5 models U.S. tax incentives for the level and location
of R&D performed by multinationals, and reveals that changes in the
after-tax price of R&D have a significant effect on spending decisions
of U.S. multinationals. Chapter 6 offers descriptive evidencefrom a
careful field study of location and sourcing decisions in nine U.S.
multinational manufacturing corporations. The final two papers examine
income shifting. In chapter 7, the authors consider the fact that
foreign-controlled companies in the United States pay lower taxes tha
