Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act





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    • Dhammika Dharmapala is at the University of Illinois at Urbana-Champaign, C. Fritz Foley is at the Harvard Business School, and Kristin J. Forbes is at the Sloan School of Management at the Massachusetts Institute of Technology. The statistical analysis of firm-level data on U.S. multinational companies was conducted at the Bureau of Economic Analysis, U.S. Department of Commerce under arrangements that maintain legal confidentiality requirements. The views expressed are those of the authors and do not reflect official positions of the U.S. Department of Commerce. We thank Anil Kashyap for inspiration for the title, and Heitor Almeida, Alan Auerbach, Jennifer Blouin, Tom Brennan, Alex Brill, Robin Greenwood, Michelle Hanlon, Jim Hines, David Weisbach, Rohan Williamson, Jeff Wurgler, Bill Zeile, and seminar and conference participants at the Bureau of Economic Analysis, Harvard, MIT, NBER, the National Tax Association, Rutgers, and the University of North Carolina Tax Symposium for helpful comments. We are also grateful to Campbell Harvey, John Graham, and two anonymous referees for useful suggestions. Foley thanks the Division of Research of the Harvard Business School for financial support. First draft: September, 2008.


The Homeland Investment Act provided a tax holiday for the repatriation of foreign earnings. Advocates argued the Act would alleviate financial constraints by reducing the cost to U.S. multinationals of accessing internal capital. This paper shows that repatriations did not increase domestic investment, employment, or R&D—even for firms that appeared to be financially constrained or lobbied for the holiday. Instead, a $1 increase in repatriations was associated with a $0.60 to $0.92 increase in shareholder payouts. Regulations intended to restrict such payouts were undermined by the fungibility of money. Results indicate that U.S. multinationals were not financially constrained and were well-governed.