Working Paper: NBER ID: w8507
Authors: Mihir A. Desai; C. Fritz Foley; James R. Hines Jr.
Abstract: This paper analyzes the effect of repatriation taxes on dividend payments by the foreign affiliates of American multinational firms. The United States taxes the foreign incomes of American companies, grants credits for any foreign income taxes paid, and defers any taxes due on the unrepatriated earnings for those affiliates that are separately incorporated abroad. This system thereby imposes repatriation taxes that vary inversely with foreign tax rates and that differ across organizational forms. As a consequence, it is possible to measure the effect of repatriation taxes by comparing the behavior of foreign subsidiaries that are subject to different tax rates and by comparing the behavior of foreign incorporated and unincorporated affiliates. Evidence from a large panel of foreign affiliates of U.S. firms from 1982 to 1997 indicates that one percent lower repatriation tax rates are associated with one percent higher dividends. This implies that repatriation taxes reduce aggregate dividend payouts by 12.8 percent, and, in the process, generate annual efficiency losses equal to 2.5 percent of dividends. These effects would disappear if the United States were to exempt foreign income from taxation.
Keywords: No keywords provided
JEL Codes: F23; G35; H25; H87
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Repatriation tax rates (H26) | Dividend payouts (G35) |
| Repatriation tax rates (H26) | Aggregate dividend payouts (G35) |
| Repatriation tax rates (H26) | Dividend remittances from incorporated foreign affiliates (F23) |
| Lagged dividends (G35) | Current dividends (G35) |
| Repatriation tax rates (H26) | Annual efficiency losses (H21) |