56661. Foreign Investment in the US (II): BEING TAKEN TO THE CLEANERS?
- Author:
- Daniel Gros
- Publication Date:
- 04-2006
- Content Type:
- Working Paper
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- The income account of the US balance of payments has so far remained in surplus because of a very large differential in reported earnings on direct investment – US firms seem to enjoy a much higher rate of return than foreign firms in the US. There is little difference in terms of the rate of dividend payments; the difference is due to what is called 'reinvested earnings' (earnings minus dividends). Foreign firms report almost no reinvested earnings on their direct investment in the US whereas US firms report substantial reinvested earnings from their direct investment abroad, on average over $100 billion more p.a. than foreign firms report on their US investment. This anomaly is probably due to the desire of foreign firms to minimise their US taxes, whereas US firms do not face tax liabilities if they report high foreign profits to the US authorities. The procedure used to generate the data for reinvested earnings thus has a built-in bias to improve the US current account and – over time – its international investment position. The true picture is likely to be much worse.</p
- Topic:
- International Relations and International Trade and Finance
- Political Geography:
- United States