Domestic Benefits from Foreign Tax Havens

Adam N. MichelForeign investment in low ‐​tax countries complements U.S. production and expands global investment.Low ‐​tax countries are often derided for either attracting illusory corporate profits without changing true investment behavior or for attracting international investment to the detriment of usually higher‐​tax countries. However, research consistently finds that when multinational businesses i nvest abroad, they also increase investment at home.For example, Mihir Desai, C. Fritz Foley, and James Hinesfind that“one dollar of additional foreign capital spending is associated with 3.5 dollars of additional domestic capital spending.” A more specific body of research shows that this complementarity of foreign and domestic investment is also true for investments in low‐​tax countries.Ongoing efforts to limit access to tax havens through international minimum taxes and other new rules will have real costs to domestic U.S. investment and employment.Tax Havens Boost Real InvestmentAccess to low ‐​tax countries increases global economic activity, and cutting off access to tax havens undermines global and domestic investment.A2004 working paper by Desai, Foley, and Hines shows that corporate activity in low ‐​tax countries “does not appear to divert activity from non‐​havens, as the estimates imply that firms establishing tax haven operations expand, rather than contract, their foreign activities in nearby” higher‐​tax countries. T...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs