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Thursday, August 22, 2013

Brennan Rejects Prior Research Claiming That 90% of Funds Repatriated in 2005 Were Used for Stock Buybacks

Thomas J. Brennan (Northwestern), Where the Money Really Went: A New Understanding of the AJCA Tax Holiday:

International tax policy debate has been informed by a belief based on prior research that, notwithstanding legal prohibitions, shareholder payouts in 2005 accounted for $0.60-$0.92 per dollar repatriated under the AJCA tax holiday. I analyze total payouts that year and prove that this belief is actually false. I use constrained regressions to determine what spending really occurred. Legal restrictions mattered. Twenty firms represented 56% of repatriated cash and spent heterogeneously during 2005-2009, with $0.78 per repatriated dollar going to AJCA-permissible uses, including cash acquisitions ($0.54) and debt reductions ($0.16). Smaller repatriators spent at least $0.61 per dollar on AJCA-permissible uses.

(Hat Tip: Peter Merrill.)

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Yes, but did the repatriation holiday create jobs?
Whether MNCs complied with the law means nothing for the most basic question: is it a good law?
It is wrong to state that the impressible use of funds is the only thing that drives current debate. Another important fact that drives current debate is that it is unclear if (at all) the repatriation holiday helped the U.S. economy, and whether it achieved anything other than a tax holiday. That's true regardless of whether MNCs complied with the restrictions or not.
Notwithstanding this critique, the article seems to be an interesting addition to the debate, as it does seem to disprove an "undisputed" understanding we had.

Posted by: Guy 2 | Aug 22, 2013 1:22:20 PM