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

Research and Teaching Output of the MIT Community

Show simple item record Dhammika, Dharmapala Foley, C. Fritz Forbes, Kristin J. 2011-11-04T16:58:59Z 2011-11-04T16:58:59Z 2009-06
dc.description.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. en_US
dc.description.sponsorship Foley thanks the Division of Research of the Harvard Business School for financial support. en_US
dc.language.iso en_US en_US
dc.publisher Cambridge, MA; Alfred P. Sloan School of Management, Massachusetts Institute of Technology en_US
dc.relation.ispartofseries MIT Sloan School of Management Working Paper;4741-09
dc.subject flypaper effect en_US
dc.subject international taxation en_US
dc.subject financial constraints en_US
dc.subject Repatriations en_US
dc.title Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act en_US
dc.type Working Paper en_US

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