"Show Me the Money" Corporate Income Taxation and Foreign Direct Investment : A Comparison Study of the United States and the United Kingdom
Giacalone, Joseph J.
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The title of this SIP comes from the 1996 movie Jerry Maguire, in which the actor Tom Cruise, playing the character of sports agent Jerry Maguire, tries to get his major client to retain him as his agent. At the end of the phone call, when Maguire's client gives a list of demands, one of which was to yell out "Show me the money!" For this paper, the author treats tax structure as Jerry Maguire trying to retain his client, and foreign direct investment as the "money" that his "player" (a country) receives from a new contract negotiation. This project was designed to explore the field of tax economics, specially focusing on how tax structure influences net inflows of foreign direct investment within a country. The author analyzes the United States, which primarily relies upon a corporate income tax (CIT) as the way to generate tax revenues from businesses, and the United Kingdom, which primarily uses a value-added tax (VAT) on goods and services to generate tax revenue from businesses. These two taxes are both geared towards businesses, which then try to offset the cost of the taxes through different means to stay competitive. The purpose of undertaking this project is to analyze the relationship between tax structure of different economies and foreign direct investment net inflows for these different economies. This paper will begin as a literature review focused on the theoretical and empirical observations behind corporate income taxes and how the understanding of corporate income taxes in the economy has changed from the 1940s to today, and then a review of how various countries have reformed their corporate income tax policies and structures since the 1970s, and how these changes have influenced the study of tax economics for corporations. The SIP then moves into a section dedicated to explaining different issues in the field of corporate income taxation, and why these issues matter to the structure of corporate income taxation. Following these sections is the analytical section of the SIP, which evaluates correlations between the real balance of payments, real GDP, and foreign direct investment- net inflows as a percentage of GDP for the United States and the United Kingdom. The author uses these countries because they are both western-style democracies with some of the largest individual economies in the world, but operate different types of tax structures, have substantial available data for this project, and remain in stable systems of governing that allow for inferences to be drawn over time without having to adjust for major societal changes that would drastically change results (i.e. political revolutions). However, the United States and the United Kingdom are different enough to run compare, as in addition to factors such as population and access to different foreign markets, the United States and the United Kingdom have different types of taxes on corporate income: the United States levies only a corporate income tax (CIT), whereas the United Kingdom levies both a corporate income tax and a value-added tax (VAT) on goods and services.