Study shows lowering foreign taxes of U.S. multinationals unlikely to benefit domestic workers

Policies that lower the foreign taxes of U.S.-based multinational corporations are unlikely to benefit domestic workers, according to a recent academic study. The study, from researchers at the Wharton School of the University of Pennsylvania, Grinnell College, and Stanford University, examined the impact of two different provisions: the 1997 “Check-the-Box” regulations and the 2004 “repatriation holiday.” The researchers found that the Check-the-Box regulations significantly reduced domestic employment and earnings, indicating that multinational companies substitute domestic with foreign activity in response to lower tax rates abroad. The repatriation holiday had no effects on labor markets, suggesting that foreign cash holdings of U.S.-based MNCs are not an important source of financing for domestic business activity. The study concludes that policies lowering the foreign taxes of US MNCs are unlikely to benefit domestic workers. “What our paper says is that our results are consistent with the substitution effect dominating the income effect, on average, when U.S. firms face cuts to their foreign taxes,” said Daniel Garrett, one of the researchers.