This paper investigates the impact of tax policy on foreign direct inv
estment flows between the US and other countries using a panel data em
pirical approach. Using panel data is an attractive alternative to usi
ng single time series data because it provides greater statistical pow
er and offers greater flexibility in terms of explanatory variables. T
his study finds many significant factors influencing the transfer of f
unds component of foreign direct investment. Most noteworthy is that,
in addition to host and home country corporate tax rates having a sign
ificant effect on investment flows, the host and home country income t
ax rates are also significant.