The Lock-Out Effect of the U.S. Worldwide Tax System: An Evaluation of the Repatriation Tax Holiday
Posted: 15 Oct 2013 Last revised: 22 Oct 2013
Date Written: August 22, 2011
Recent theoretical research suggests that among U.S. firms that have reached their optimal level of investment in foreign operations some will be induced by the U.S. repatriation tax system to accumulate foreign earnings in foreign financial assets. In this paper we evaluate this behavior which the literature has dubbed the “lock-out effect.” The American Jobs Creation Act of 2004 that created a one-time tax holiday for repatriations provides a powerful setting to evaluate the lock-out effect. Using a hand-collected sample of firms that repatriated under the tax holiday, we find evidence strongly supporting the existence of a lock-out effect.
Keywords: lock-out effect, corporate tax, repatriation, jobs act, american jobs creation act
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