The Impact of the Tax Cuts and Jobs Act on Foreign Investment in the United States

The 2017 Tax Cuts and Jobs Act (TCJA) slashed corporate tax rates on equity-financed investments while raising them sharply on debt-financed investment. This study examines the tax reform's impact on the volume and composition of U.S. inbound foreign investment during 2014-2019 using regression analysis of bilateral effective average and marginal tax rates. We find that TCJA affected inbound investment, especially incre-mental investment by existing foreign-owned companies: Retained earnings rose due to lower equity tax rates, while expansions and tangible investments responded to both equity and debt tax changes. Foreign acquisitions and new establishments were not significantly impacted, and industry-level analysis shows an attenuated effect of effective tax rates. We also find that bilateral cross-border tax rates with the country of ultimate beneficial ownership correlate more strongly with investment than bilateral rates with intermediate jurisdictions.