Repatriation Holidays

Many companies have been pushing for a repatriation holiday and recent reports have highlighted how much cash is held overseas.

A little more than half the companies in the Fortune 500 have at least $1.6 trillion in untaxed profits parked offshore, according to a new study by the nonprofit group Citizens for Tax Justice, which looked at the financial filings of 290 of the Fortune 500. Just 20 of those companies, including multinational behemoths like Apple, GE and Microsoft, have nearly half of the total, or $794 billion, in untaxed offshore profits.

What happened last time we did this? Dhammika Dharmapala, C. Fritz Foley, Kristin J. Forbes have a Journal of Finance paper that answers this question and gives good reason to be skeptical of those promising large benefits in terms of investment, hiring, and R&D.

ABSTRACT: This paper analyzes the impact of the Homeland Investment Act of 2004, which provided a one-time tax holiday for the repatriation of foreign earnings and thereby reduced the cost to U.S. multinationals of accessing a source of internal capital. Lawmakers and lobbyists justified its passage by arguing that it would alleviate financial constraints. This paper’s results indicate that repatriations did not lead to an increase in domestic investment, domestic employment or R&D—even for the firms that appeared to be financially constrained or lobbied for the holiday. Instead, estimates indicate that a $1 increase in repatriations was associated with a $0.60-$0.92 increase in payouts to shareholders—despite regulations stating that such expenditures were not a permitted use of repatriations qualifying for the tax holiday. The results indicate that U.S. multinationals were not financially constrained and were reasonably well-governed. The fungibility of money appears to have undermined the effectiveness of the regulations.


About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar.
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2 Responses to Repatriation Holidays

  1. Pingback: Economist's View: Links for 12-17-2012

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