Journal Article The Optimal Taxation of International Investment Income: Reply Get access Thomas Horst Thomas Horst Taxecon Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 97, Issue 2, May 1982, Page 381, https://doi.org/10.2307/1880766 Published: 01 May 1982

Journal Article A Note on the Optimal Taxation of International Investment Income Get access Thomas Horst Thomas Horst Office of International Tax Affairs, U.S. Department of the Treasury Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 94, Issue 4, June 1980, Pages 793–798, https://doi.org/10.2307/1885669 Published: 01 June 1980

T HIS paper presents the results of an empirical study of the distinguishing characteristics of United States manufacturing corporations with foreign subsidiaries. My conclusions are drawn from two sets of data: the first covers 1191 manufacturing corporations, 576 of which owned a majority interest in a Canadian subsidiary in 1967. My second set of data, a subset of the first, covers Fortune's 500 largest industrial corporations, 187 of which qualified for the designation of the Harvard Business School.' I hope to draw some basic inferences about the direct investment process by comparing the characteristics of those firms investing in Canada with those not doing so, of those which are multinational with those which are not, and those which are multinational with those investing in Canada, if not in, six other countries. In order to put the contribution of this paper into proper historical perspective, let me comment briefly on the existing literature on why firms invest abroad. Earlier research has tended to fall into one of two categories: studies of the characteristics of the industries in which foreign investing is comparatively heavy, or studies of the characteristics of the individual firms investing abroad. The industrial studies are far more common (owing largely, one suspects, to the easier access to industry data) and have been thoroughly surveyed in a recent paper by Richard Caves. His conclusions in a nutshell were:

This paper explores the profit-maximizing strategy for a monopolistic firm selling to two national markets simultaneously. The choice of how much to produce and sell in each country, how much to export between the two, and what transfer price to put on intrafirm exports is shown to depend heavily on two considerations: (1) whether the marginal costs of production are rising or falling, and (2) whether tariffs are high enough for the firm to discriminate perfectly between its two national markets. After showing how the firm reacts to a given set of tariffs on imports and taxes on profits, the impact of a change in any policy variable is assessed.