Working Paper: NBER ID: w15023
Authors: Dhammika Dharmapala; C. Fritz Foley; Kristin J. Forbes
Abstract: This paper analyzes the impact on firm behavior of the Homeland Investment Act of 2004, which provided a one-time tax holiday for the repatriation of foreign earnings by U.S. multinationals. The analysis controls for endogeneity and omitted variable bias by using instruments that identify the firms likely to receive the largest tax benefits from the holiday. Repatriations did not lead to an increase in domestic investment, employment or R&D -- even for the firms that lobbied for the tax holiday stating these intentions and for firms that appeared to be financially constrained. Instead, a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders. These results suggest that the domestic operations of U.S. multinationals were not financially constrained and that these firms were reasonably well-governed. The results have important implications for understanding the impact of U.S. corporate tax policy on multinational firms.
Keywords: No keywords provided
JEL Codes: F23; G14; G18; G3; H25; H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Homeland Investment Act (HIA) (R38) | domestic investment (E22) |
| Homeland Investment Act (HIA) (R38) | employment (J68) |
| Homeland Investment Act (HIA) (R38) | R&D expenditures (O32) |
| 1% increase in repatriations (F24) | 0.79% increase in share repurchases (G34) |
| 1% increase in repatriations (F24) | 0.15% increase in dividends (G35) |
| Homeland Investment Act (HIA) (R38) | roundtripping (C59) |
| guidelines by US Treasury Department (F38) | ineffective allocation of repatriated funds (F35) |