International Tax and Public Finance

, Volume 11, Issue 5, pp 601–622 | Cite as

The Effects of Bilateral Tax Treaties on U.S. FDI Activity

  • Bruce A. Blonigen
  • Ronald B. Davies


The effects of bilateral tax treaties on FDI activity have been unexplored, despite significant ongoing activities by countries to negotiate and ratify these treaties. This paper estimates the impact of bilateral tax treaties using both U.S. inbound and outbound FDI over the period 1980–1999. Robust to a wide variety of alternative specifications, we find little evidence that bilateral tax treaties increase FDI activity, contrary to OECD-stated goals for such treaties.

foreign direct investment tax treaties multinational corporations 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Altshuler, R., H. Grubert and T. S. Newlon. (1998). “Has U.S. Investment Become More Sensitive to Tax Rates?” NBER Working Paper, No. 6383.Google Scholar
  2. Altshuler, R. and T. S. Newlon. (1991). “The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U.S. Multinational Corporations.” NBER Discussion Paper, No. 571.Google Scholar
  3. Altshuler, R., T. S. Newlon and W. Randolph. (1995). “Do Repatriation Taxes Matter? Evidence from the Tax Returns of U.S. Multinationals.” In Martin Feldstein, James Hines, Jr. and R. Glenn Hubbard (eds.), Effects of Taxation on Multinational Corporations. Chicago University of Chicago Press, pp. 253-272.Google Scholar
  4. Ault, H. J. and D. F. Bradford. (1990). “Taxing International Income: An Analysis of the U.S. System and Its Economic Premises.” In Assaf Razin and Joel Slemrod (eds.), Taxation in the Global Economy. Chicago: University of Chicago Press, pp. 11-46.Google Scholar
  5. Bali Online Corporation. (1999). Scholar
  6. Barro, R. and J. W. Lee. (1996). “International Measures of Schooling Years and Schooling Quality.” American Economic Review: Papers and Proceedings 86, 218-223.Google Scholar
  7. Blonigen, B. A. and R. B. Davies. (2000). “The Effects of Bilateral Tax Treaties on U.S. FDI Activity.” NBER Working Paper, No. 7929.Google Scholar
  8. Blonigen, B. A., R. B. Davies and K. Head. (2003). “Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment,” American Economic Review 93, 980-994.Google Scholar
  9. Bond, E. and L. Samuelson. (1989). “Strategic Behaviour and the Rules for International Taxation of Capital.” Economic Journal 99, 1099-1111.Google Scholar
  10. Brainard, S. L. (1997). “An Empirical Assessment of the Proximity-Concentration Trade-off Between Multinational Sales and Trade,” American Economic Review 87, 520-544.Google Scholar
  11. Bureau of Economic Analysis. (1998). Detailed Annual Balance of Payments and Position Estimates.Washington, D.C.: Bureau of Economic Analysis International Data.Google Scholar
  12. Carr, D., J. R. Markusen and K. E. Maskus. (2001). “Estimating the Knowledge-Capital Model of the Multinational Enterprise,” American Economic Review 91, 693-708.Google Scholar
  13. Casson, M. (1979). Alternatives to the Multinational Enterprise. London: Macmillan Press.Google Scholar
  14. Caves, R. E. (1993). Multinational Enterprise and Economic Analysis, 2nd edition. New York: Cambridge Press.Google Scholar
  15. Chisik, R. and R. B. Davies. (2004). “Asymmetric FDI and Tax Treaty Bargaining. Theory and Evidence,” Journal of Public Economics 88, 1119-1148.Google Scholar
  16. Chisik, R. and R. B. Davies. (forthcoming). “Gradualism in Tax Treaties with Irreversible Foreign Direct Investment,” International Economic Review.Google Scholar
  17. Dagan, T. (2000). “The Tax Treaties Myth,” New York University Journal of International Law and Politics Summer, 939-996.Google Scholar
  18. Davies, R. B. (2003). “The OECD Model Tax Treaty: Tax Competition and Two-Way Capital Flows.” International Economic Review 44, 725-753.Google Scholar
  19. Diamond,W. and D. Diamond. (1998). International Tax Treaties of All Nations. Dobb's Ferry: Ocean Publications.Google Scholar
  20. Doernberg, R. (1997). International Taxation in a Nutshell, 3rd edition. St. Paul: West Publishing.Google Scholar
  21. Easson, A. (1999). Taxation of Foreign Direct Investment: An Introduction. The Hague: Kluwer Law International.Google Scholar
  22. Eden, L. (1998). Taxing Multinationals: Transfer Pricing and Corporate Income Taxation in North America. Toronto: University of Toronto Press.Google Scholar
  23. Graham, E. and P. Krugman. (1995). Foreign Direct Investment in the United States. 3rd edition,Washington D.C.: Institute for International Economics.Google Scholar
  24. Gravelle, P. (1988). “Tax Treaties: Concepts, Objectives and Types,” International Bureau of Fiscal Documentation Bulletin 522, 522-526.Google Scholar
  25. Grubert, H. and J. Mutti. (1991). “Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making,” Review of Economics and Statistics 73, 285-293.Google Scholar
  26. Hallward-Dreimeier, M. (2003). “Do Bilateral Investment Treaties Attract Foreign Direct Investment? A Bit and They Could Bite,” World Bank Working Paper, No. 3121.Google Scholar
  27. Hamada, K. (1966). “Strategic Aspects of Taxation on Foreign Investment Income,” Quarterly Journal of Economics 80, 361-375.Google Scholar
  28. Hartman, D. (1985). “Tax Policy and Foreign Direct Investment,” Journal of Public Economics 26, 107-121.Google Scholar
  29. Hines, J. R. Jr. (1988). “Taxation and U.S. Multinational Investment.” In Lawrence Summers (ed.), Tax Policy and the Economy, vol. 2. Boston: MIT Press, pp. 33-61.Google Scholar
  30. Hines, J. R. Jr. (1992). “Credit and Deferral as International Investment Incentives,” NBER Working Paper, No. 4191.Google Scholar
  31. Hines, J. R. and K. L. Willard. (1992). “Trick or Treaty? Bargains and Surprises in International Tax Agreements.” Mimeo.Google Scholar
  32. Janeba, E. (1995). “Corporate Income Tax Competition, Double Taxation Treaties, and Foreign Direct Investment,” Journal of Public Economics 56, 311-325.Google Scholar
  33. Janeba, E. (1996). “Foreign Direct Investment Under Oligopoly: Profit Shifting or Profit Capturing?” Journal of Public Economics 60, 423-445.Google Scholar
  34. Jones, B. (1996). “International Tax Developments and Double Taxation Agreements in Australia.” In Richard Vann (ed.), Tax Treaties: Linkages Between OECD Member Countries and Dynamic Non-Member-Economies. Paris: OECD Committee on Fiscal Affairs, pp. 19-26.Google Scholar
  35. Markusen, J. R. (2002). Multinational Firms and the Theory of International Trade. Boston: MIT Press.Google Scholar
  36. Markusen, J. R. and K. E. Maskus. (2001). “Multinational Firms: Reconciling Theory and Evidence.” In Magnus Blomstrom and Linda S. Goldberg (eds.), Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey. Chicago, IL: University of Chicago Press for National Bureau of Economic Research, pp.71-97.Google Scholar
  37. Markusen, J. R. and K. E. Maskus. (2002). “Discriminating Among Alternative Theories of the Multinational Enterprise,” Review of International Economics 10, 694-707.Google Scholar
  38. Mutti, J. and H. Grubert. (1996). “The Significance of InternationalTax Rules for Sourcing Income: the Relationship Between Income Taxes and Trade Taxes,” NBER Working Paper, No. 5526.Google Scholar
  39. Organization for Economic Cooperation and Development. (1989). Explanatory Report on the Convention on Mutual Administrative Assistance in Tax Matters. Paris: OECD Committee on Fiscal Affairs.Google Scholar
  40. Organization for Economic Cooperation and Development. (1994). Tax Information Exchange Between OECD Member Countries: A Survey of Current Practices. Paris: OECD Committee on Fiscal Affairs.Google Scholar
  41. Organization for Economic Cooperation and Development. (1997). Model Tax Convention on Income and on Capital. Paris: OECD Committee on Fiscal Affairs.Google Scholar
  42. Radaelli, C. M. (1997). The Politics of Corporate Taxation in the European Union. London: Routledge Research in European Public Policy.Google Scholar
  43. Ramaswami, V. K. (1968). ”International FactorMovement and the National Advantage,” Economica 35, 309-310.Google Scholar
  44. Ramsey, J. B. (1969). “Tests for Specification Errors in Classical Linear Least Squares Regression Analysis,” Journal of the Royal Statistical Society Series B 31, 350-371.Google Scholar
  45. Sasseville, J. (1996). “Current Issues in International Tax Policy.” In Richard Vann (ed.), Tax Treaties: Linkages Between OECD Member Countries and Dynamic Non-Member-Economies. Paris: OECD Committee on Fiscal Affairs, pp. 9-13.Google Scholar
  46. Shapiro, S. S. and M. B. Wilk. (1965). “An Analysis of Variance Test for Normality (Complete Samples),” Biometrika 52, 591-611.Google Scholar
  47. Sinn, H.-W. (1993). “Taxation and the Birth of Foreign Subsidiaries.” In Horst Heber and Ngo V. Long (eds.), Trade,Welfare, and Economic Policies, Essays in Honor of Murray C.Kemp. Ann Arbor: University of Michigan Press, pp. 325-352.Google Scholar
  48. Summers, R. and A. Heston. (1991). “The Penn-World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988,” Quarterly Journal of Economics 106, 327-368.Google Scholar
  49. (2002). “Worldwide Tax Treaties.” Available at http://www/ (accessed June 2002).Google Scholar
  50. United Nations. (1998). Bilateral Investment Treaties in the Mid-1990s. New York: United Nations Conference on Trade and Development.Google Scholar
  51. White, F. (1991). “The United States Perspective,” Tax Treaties and Local Taxes, International Fiscal Association, 16, 15-24.Google Scholar

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Bruce A. Blonigen
    • 1
  • Ronald B. Davies
    • 2
  1. 1.Department of Economics1285 University of Oregon and NBEREugene
  2. 2.Department of Economics1285 University of OregonEugene

Personalised recommendations