THE LINK BETWEEN TAX RATES AND FOREIGN DIRECT-INVESTMENT

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.