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Coming Home To America: Dividend Repatriations By U.S. Multinationals

In: Taxation in the Global Economy

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  • James R. Hines, Jr.
  • R. Glenn Hubbard

Abstract

This paper analyzes the financial flows from foreign subsidiaries of American multinational corporations to their parent corporations in the U.S. These repatriations are important not only to U.S. investors, who thereby have access to those funds, but also to the U.S. government, which generally does not tax foreign earnings of controlled foreign corporations until they are repatriated. The paper reviews the current tax system as applied to multinational firms, and considers the incentives it creates for various intra-firm financial transactions (in particular, the form of repatriations). These incentives appear to be inconsistent with historical repatriation patterns from aggregate time-series data on the overseas operations of U.S. multinationals. To resolve this inconsistency, we explore the determinants of distributions by foreign subsidiaries to their U.S. parent corporations, using new micro data on 12,041 controlled foreign corporations (and their 453 U.S. parents) collected from tax returns for 1984. This source exposes variations in distribution patterns not detectable in aggregate data. In particular, the data suggest that most subsidiaries paid no dividends to their parents in 1984, and that the U.S. government collected very little revenue on their foreign income while distorting their internal financial transactions.

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Bibliographic Info

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This chapter was published in:

  • Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7208.

    Handle: RePEc:nbr:nberch:7208

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    1. Bernard, J-T. & Weiner, R.J., 1988. "Multinational Corporations, Transfer Prices, And Taxes: Evidence From The U.S. Petroleum Industry," Papers, Laval - Recherche en Energie 8822, Laval - Recherche en Energie.
    2. Horst, Thomas, 1977. "American Taxation of Multinational Firms," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 376-89, June.
    3. Mark Gertler & R. Glenn Hubbard, 1988. "Financial factors in business fluctuations," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 33-78.
    4. James M. Poterba, 1987. "Tax Policy and Corporate Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(2), pages 455-516.
    5. David G. Hartman, 1981. "Domestic Tax Policy and Foreign Investment: Some Evidence," NBER Working Papers 0784, National Bureau of Economic Research, Inc.
    6. Scholes, Myron S & Wolfson, Mark A, 1990. "The Effects of Changes in Tax Laws on Corporate Reorganization Activity," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 63(1), pages S141-64, January.
    7. David F. Bradford, 1979. "The Incidence and Allocation Effects of a Tax on Corporate Distributions," NBER Working Papers 0349, National Bureau of Economic Research, Inc.
    8. Goodspeed, Timothy & Frisch, Daniel, 1989. "U.S. tax policy and the overseas activities of U.S. multinational corporations: a quantitative assessment," MPRA Paper 39389, University Library of Munich, Germany.
    9. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, National Bureau of Economic Research, Inc, in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc.
    10. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    11. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, American Economic Association, vol. 76(2), pages 323-29, May.
    12. Alan J. Auerbach, 1980. "Wealth Maximization and the Cost of Capital," NBER Working Papers 0254, National Bureau of Economic Research, Inc.
    13. Alan K. Severn, 1972. "Investment And Financial Behavior Of American Direct Investors In Manufacturing," NBER Chapters, National Bureau of Economic Research, Inc, in: International Mobility and Movement of Capital, pages 367-396 National Bureau of Economic Research, Inc.
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