US Corporate Tax Reform and Financial Reporting Incentives
8 Pages Posted: 15 Oct 2013 Last revised: 22 Oct 2013
Date Written: October 7, 2013
Under the current U.S. tax system, corporations have an incentive to defer the repatriation of their foreign earnings. This incentive is commonly referred to as the lock-out effect. The lock-out effect is significant, as estimates indicate that U.S. corporations hold nearly $2 trillion of earnings in foreign jurisdictions. While the U.S. tax system creates an incentive to retain these earnings abroad, research suggests that a non-tax factor, financial reporting incentives, exacerbates this lock-out effect. This study informs the debate regarding the lock-out effect by discussing evidence that financial reporting incentives significantly affect U.S. corporations’ tax policy responses.
Keywords: financial reporting incentives, corporate tax reform, lock-out effect, repatriation
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