Three essays on the taxation of capital in the United States
Sim, Daniel Hsien Yang
Doctor of Philosophy
This thesis extends the research on the calculation of the effective tax rate on capital income and the effects of taxes on foreign direct investment. The first essay applies the King and Fullerton marginal effective tax rate methodology to a wide range of industries, investors and different types of investments for 1984 to 1997. In the second essay, I modify the basic methodology to analyze the taxation of foreign investors in the United States. The interaction between foreign tax systems and the tax system of the US is analyzed and the marginal effective tax rates for investors from five countries (Canada, France, Germany, Japan and United Kingdom) are calculated. The third essay uses the marginal effective tax rates estimated in the second essay to carry out a quantitative analysis of the determinants of foreign direct investment in the United States. Non-tax variables included in this model include proxies for intangible assets, imperfect competition in an industry, and a variable that captures the notion of knowledge capital. By integrating the public finance and industrial organization literature on foreign direct investment, I obtain more accurate estimates of the determinants of foreign direct investment in the United States. The empirical results show that both the overall and corporate marginal effective tax rates exert a significant influence over foreign direct investment flows into the United States.