TY  - JOUR
AU  - Dharmapala,Dhammika
AU  - Foley,C. Fritz
AU  - Forbes,Kristin J.
TI  - Watch What I Do, Not What I Say:  The Unintended Consequences of the Homeland Investment Act
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15023
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15023
L1  - http://www.nber.org/papers/w15023.pdf
N1  - Author contact info:
Dhammika Dharmapala
University of Illinois College of Law
504 E. Pennsylvania Avenue
Champaign, IL 61820
E-Mail: dharmap@illinois.edu

C. Fritz Foley
Graduate School of Business Administration
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6375
Fax: 617/496-8443
E-Mail: ffoley@hbs.edu

Kristin Forbes
MIT Sloan School of Management
100 Main Street, E62-416
Cambridge, MA  02142
Tel: 617/253-8996
Fax: 617/258-6855
E-Mail: kjforbes@mit.edu
AB  - 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.
ER  -