THE EFFECT OF TAXES ON FOREIGN INVESTMENTS IN LESS DEVELOPED COUNTRIES

SAMUEL AYODELE GOODING, Purdue University

Abstract

Many Less Developed Countries (LDC's), in the aftermath of World War II, resorted to the use of tax incentive programs in the belief that conferral of such benefits would attract capitals from abroad which were either lacking in their economies or in very short supply in order to accelerate the pace of their economic and social progress. Although the widespread use of such devices are contrary to established theory, few studies have been devoted to the investigation of foreign investments in LDC's. Many of those studies which have attempted investigation have ignored the question of whether taxes on foreign investment incomes in these countries are shifted or not. This thesis attempts a study of whether shifting and the incidence of the foreign investment income tax in LDC's is more pronounced than they are in developed countries (DC's). In undertaking this task, elements peculiar to LDC's have been taken into account, such as the lack of or the inadequacy of the financial markets in these countries as well as the structures of their structures of their economies. In particular, the thesis investigates whether taxes on foreign investment in these countries are shifted in the "long-run" and if so, whether the degree of shifting is more pronounced than the shift in developed countries. The thesis also studies the question of whether foreign (U.S.)-owned firms operating in the LDC's are more apt to rely on internal sources in financing their investments than do their counterparts in the developed countries. Evidence from available data indicates a relatively greater degree of shifting in the DC's than in the LDC's, contrary to what was expected. Furthermore, although the availability of internal funds seems to be one of prime determining factors in the investment decisions of majority-owned foreign firms in the LDC's, this dependence does not seem any different than they are in the developed countries.

Degree

Ph.D.

Subject Area

Business community

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