THE EFFECT OF EXPORT TAX INCENTIVES ON EXPORT VOLUME: THE DISC/FSC EVIDENCE

• Published in: Advances in Taxation Vol. 15; pp. 1 - 28
• Main Authors: Billings, B.Anthony, McGill, Gary A, Mougoué, Mbodja
• Format: Book Chapter
• Language: English
• Published: Emerald Group Publishing Limited 2003
• ISBN: 0762310650; 9780762310654
• ISSN: 1058-7497
• DOI: 10.1016/S1058-7497(03)15001-6

This article examines the sensitivity of U.S. exports to the availability of export incentives offered under the Domestic International Sales Corporation (DISC) and the Foreign Sales Corporation (FSC) provisions of U.S. tax law. Evidence on the efficacy of export tax incentives is mixed. The history of the DISC/FSC tax incentives provides a natural experiment to address the question of the effect of tax incentives on export volume. We examine the relation of U.S. export volume to the availability of these export tax incentives from 1967 to 1998, controlling for product class and important macroeconomic variables, and find evidence of a positive association between the level of U.S. exports and the existence of the export incentives offered under the DISC/FSC provisions. However, this association depends on product type. Our findings using actual export data are independent of otherwise available data demonstrating a general growth in the use of DISC/FSC entities and the sales volume of these entities. The latter data suffer from an interpretation problem because changes in the number of special export entities used and their sales volume do not necessarily correlate with changes in actual export levels over time. The approach we use in this study is an attempt to overcome this limitation. The reported results have implications for both tax policy regarding the design of export tax incentives and the European Union’s claim that U.S. export tax incentives have damaged U.S. competitors in foreign trade.