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Market-Based Solutions to Vital Economic Issues
Research
Oct 10, 2018

U.S. Firms on Foreign (Tax) Holidays

Abstract

We undertake the first large-sample analysis of foreign tax holiday participation by U.S. firmsTax holidays are temporary reductions of tax granted by governments, usually contingent on the firm making new operational investments in the country. We predict and find that firms are more likely to participate in foreign tax holidays if they are highly capital-intensive and have highly profitable foreign operations, and less likely to participate in foreign tax holidays if they are capital constrained and if the firm is headed by a short-term focused CEO. Finally, while foreign tax holidays reduce taxes on foreign income, we also find that during our sample period they increase the amount of U.S. tax on foreign income.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals. 


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