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Enacting Dividend Exemption and Tax Revenue

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  • Grubert, Harry
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    Abstract

    This paper first presents a "static" no-behavioral-change estimate of the revenue implications of dividend exemption, and how it depends on the various components of the scheme that are assumed. Using 1996 data, we find that there is a "static" gain in excess of $9 billion. The allocations of parent overhead expense to exempt income and the full taxation of sales source and royalty income, which can no longer be shielded by excess credits flowing over from dividends, are much more significant than the foregone taxes on dividends. The Treasury files are then used to evaluate the potential significance of behavioral responses, the most important of which involve expense allocations and royalties. The objective of the analysis is to identify companies that have the same incentives under current law as all companies would have under exemption. The evidence suggests that the behavioral changes may be large but that they would tend to offset each other. Royalty payments will decline but, at the same time, parent multinational corporations will carry less debt on their own books.

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    Bibliographic Info

    Article provided by National Tax Association in its journal National Tax Journal.

    Volume (Year): 54 (2001)
    Issue (Month): n. 4 (December)
    Pages: 811-27

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    Handle: RePEc:ntj:journl:v:54:y:2001:i:n._4:p:811-27

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. James R. Hines, Jr. & Eric M. Rice, 1990. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2011. "Tax Policy and the Efficiency of U.S. Direct Investment Abroad," NBER Working Papers 17202, National Bureau of Economic Research, Inc.
    2. Rosanne Altshuler & Harry Grubert, 2002. "Where will they go if we go territorial? Dividend exemption and the location decisions of U.S. multinational corporations," Departmental Working Papers, Rutgers University, Department of Economics 200201, Rutgers University, Department of Economics.
    3. Harry Grubert, 2003. "The Tax Burden on Cross-Border Investment: Company Strategies and Country Responses," CESifo Working Paper Series, CESifo Group Munich 964, CESifo Group Munich.
    4. Peter J. Mullins, 2006. "Moving to Territoriality? Implications for the United States and the Rest of the World," IMF Working Papers, International Monetary Fund 06/161, International Monetary Fund.
    5. Leibrecht, Markus & Bellak, Christian & Wild, Michael, 2009. "Does lowering dividend tax rates increase dividends repatriated?: evidence of intra-firm cross-border dividend repatriation policies by German Multinational Enterprises," Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank, Research Centre 2009,19, Deutsche Bundesbank, Research Centre.

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