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Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act

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Author Info
Dhammika Dharmapala
C. Fritz Foley
Kristin J. Forbes

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15023.

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Date of creation: Jun 2009
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Handle: RePEc:nbr:nberwo:15023

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G3 - Financial Economics - - Corporate Finance and Governance
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion

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This page was last updated on 2009-11-25.

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