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The Effect of Repatriation Taxes on Investment Efficiency

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Title:The Effect of Repatriation Taxes on Investment Efficiency
Authors:Amberger, Harald
Samuel, David M. P.
Markle, Kevin
Keywords:Repatriation Taxes
International Taxation
Internal Capital Markets
Agency Frictions
show 1 moreMultinational Firms
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Date Issued:01 Sep 2017
Abstract:This paper examines the effect of repatriation taxes on investment efficiency, which we define as a subsidiary's investment sensitivity to local growth opportunities. Based on a global sample of firms we provide evidence that subsidiaries invest less efficiently when their ultimate owner is resident in a worldwide tax system. We confirm our results using natural experiments in the UK and Japan, which both switched from a worldwide to a territorial tax system in 2009.
Our results suggest that repatriation tax costs reinforce agency conflicts, which distort firms' internal capital markets and lead to sub-optimal investment decisions.
Appears in Collections: 08 Taxation (Tax)

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