States with high tax rates who wish foreign companies to invest there would do well to concentrate on those companies that receive tax credits back home, according to research from Harvard's James R. Hines Jr.

• Nations generally use two methods to avoid subjecting multinational corporations to double taxation on their overseas activities.

• Some -- such as Britain, Japan and the U.S. -- provide credits for taxes paid to foreign governments, which can be used to offset home-country taxes.

• Countries such as Canada, France and Germany effectively exempt the foreign earnings of their multinationals from any home-country taxes at all.

These different systems should affect an overseas company's decision where to locate a plant in the U. S. -- whether to shop around for a low-tax state or not even factor state taxes in.

• Multinationals from countries providing credits against foreign taxes paid should be relatively unconcerned about state tax levels in making U.S. investment decisions.

• But those whose earnings are exempt from home-country taxation will shop carefully among the states and avoid those with high taxes, Hines concluded.

That's because state taxes in the U.S. are a direct cost item to those foreign companies.

Source: Gene Koretz, "Do Low Taxes Lure Investment?" Business Week, January 27, 1997.