U.S. Multinationals' Tax Strategies and Domestic Employment

Abstract

We investigate the effect of foreign tax avoidance (and the subsequent increase in potential repatriation taxes) on domestic (U.S.) employment for multinational corporations. We use confidential BEA data on foreign and domestic employment during both the pre-TCJA and post-TCJA years. Using the establishment of a Double Irish tax avoidance structure and a proxy for exogeneous changes to potential repatriation taxes, we provide plausibly-causal evidence that potential repatriation taxes decreased domestic employment while increasing foreign employment during the pre-TCJA era. Despite removing repatriation taxes, we find no evidence that the TCJA changed employment behavior; firms continued with business as usual.

Keywords: JEL Classifications: G3, G34, G38, H26, H32 Taxes, Multinational Firms, Corporate Innovation, Employment