NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trade Credit and Taxes

Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.

NBER Working Paper No. 18107
Issued in May 2012
NBER Program(s):   CF   ITI   PE

This paper analyzes the extent to which firms use trade credit to reallocate capital in response to tax incentives. Tax-induced differences in pretax returns encourage the use of trade credit to reallocate capital from firms facing low tax rates to those facing high tax rates. Evidence from the worldwide operations of U.S. multinational firms indicates that affiliates in low-tax jurisdictions use trade credit to lend, whereas those in high-tax jurisdictions use trade credit to borrow: ten percent lower local tax rates are associated with net trade credit positions that are 1.4 percent higher as a fraction of sales. The use of trade credit to get capital out of low-tax, low-return environments is also illustrated by reactions of U.S. firms to the temporary repatriation tax holiday in 2005, when affiliates with positive net trade credit positions were significantly more likely than others to repatriate dividends to parent companies in the United States.

A non-technical summary of this paper is available in the September 2012 NBER digest.  You can sign up to receive the NBER Digest by email.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18107

Users who downloaded this paper also downloaded these:
Juhn, Ujhelyi, and Villegas-Sanchez w18106 Men, Women, and Machines: How Trade Impacts Gender Inequality
Greenwood and Shleifer w18686 Expectations of Returns and Expected Returns
Alfaro and Chen w18207 Selection, Reallocation, and Spillover: Identifying the Sources of Gains from Multinational Production
Greenwood, Landier, and Thesmar w18537 Vulnerable Banks
Desai, Foley, and Hines w17202 Tax Policy and the Efficiency of U.S. Direct Investment Abroad
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us