Foreign Tax Holiday Participation and U.S. Employment and Investment Loss

55 Pages Posted: 6 Apr 2021 Last revised: 26 Apr 2024

See all articles by Zackery D. Fox

Zackery D. Fox

Brigham Young University

Linda K. Krull

University of Oregon

Scott G. Rane

University of Florida - Fisher School of Accounting

Date Written: April 24, 2024

Abstract

We investigate whether foreign tax holiday participation among U.S. multinational companies is associated with offshoring U.S. employment and other domestic investment activities. We find that foreign tax holiday participation is associated with (1) an increase in offshoring U.S. jobs and (2) a decrease in domestic investment, as proxied by employment, capital expenditures, and R&D activity. Furthermore, we find evidence suggesting that the association between targeted, temporary tax incentives provided by foreign tax holidays and firms’ domestic activities is distinct from that of lower foreign statutory tax rates. Overall, the results of this study increase our understanding of firm-level consequences of foreign tax holiday participation, the influence of various tax incentive structures on the allocation of firm resources, and the potential consequences of international tax competition.

Keywords: tax holidays, offshoring, foreign investment, employment

JEL Classification: F23, G31, H25, J21, J22, M16, M41

Suggested Citation

Fox, Zackery D. and Krull, Linda K. and Rane, Scott G., Foreign Tax Holiday Participation and U.S. Employment and Investment Loss (April 24, 2024). Available at SSRN: https://ssrn.com/abstract=3820017 or http://dx.doi.org/10.2139/ssrn.3820017

Zackery D. Fox

Brigham Young University ( email )

Provo, UT 84602
United States

Linda K. Krull

University of Oregon ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States
541-346-3252 (Phone)

Scott G. Rane (Contact Author)

University of Florida - Fisher School of Accounting ( email )

Gainesville, FL 32611
United States

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