This study uses confidential information on foreign affiliate assets to investigate whether the Tax Cuts and Jobs Act of 2017 (TCJA) alleviated investment frictions created by permanently reinvested earnings (PRE) reported in U.S. multinational corporations' (MNCs) consolidated financial statements. We begin by investigating the repatriation behavior of MNCs surrounding enactment of the TCJA. Consistent with accounting creating frictions within the MNC, we document that repatriations are greater for firms with relatively more PRE held in cash. Relatedly, we find that domestic investment by MNCs with above median PRE held in cash is more sensitive to domestic cash flow than other firms before but not after the TCJA. Overall, our results are consistent with PRE being associated with internal capital market frictions which were alleviated after the TCJA.

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced substantial changes to the U.S. corporate tax system, including a lower statutory tax rate and the adoption of a more territorial-like international tax framework. Many of the international provisions were meet with significant uncertainty regarding implementation and application for corporate tax positions. We present a theoretical framework that models a firm’s choice regarding the amount of risk firms are willing to take on their tax positions. We empirically test our predictions using measures of tax risk, uncertainty, and firm-level behavior before and after the TCJA. Our results suggest that the positive association between tax uncertainty and tax avoidance declines significantly after the TCJA, particularly for firms with tax haven subsidiaries. Our findings suggest that policy interventions that reduce incentives for elaborate tax planning can meaningfully reduce corporate tax risk-taking. This evidence provides insights for policymakers and stakeholders seeking to lower incentives for highly risky and aggressive tax planning strategies.

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced substantial changes to the U.S. corporate tax system, including a lower statutory tax rate and the adoption of a more territoriallike international tax framework. These shifts carry important implications for the complexity of corporate tax positions. We present a theoretical framework that models a firm's choice regarding the complexity of tax positions. We then empirically test its predictions using measures of tax risk, uncertainty, and firm-level behavior before and after the TCJA. Our results suggest that the positive association between tax uncertainty and tax avoidance declines significantly after the TCJA, particularly for firms with tax haven subsidiaries. Contrary to recent claims that corporate tax complexity would persist or worsen without deliberate efforts to simplify the tax code, our findings suggest that policy interventions that reduce incentives for elaborate tax planning can meaningfully simplify corporate tax positions. This evidence provides insights for policymakers and stakeholders seeking to design more efficient and equitable tax systems.

The Tax Cuts and Jobs Act (TCJA) of 2017 represents the most significant reform of the U.S. income tax code since the Tax Reform Act of 1986. Previous analyses of the TCJA's economic impact often rely on projections based on data prior to the enactment of the legislation. This paper leverages plausibly exogenous variations in state-level tax changes brought about by the TCJA and employs local projections with two-way fixed effects to examine its effects on the labor market. Measures of TCJA tax shocks are constructed with the NBER-TAXSIM model using state-level tax return data from the Statistics of Income (SOI). Our findings suggest that tax cuts amounting to 1 percent of Adjusted Gross Income (AGI) under the TCJA are associated with a 1 percentage point increase in the labor force participation rate (LFPR) and a 1.5 percentage point acceleration in job growth over the two years following the TCJA's implementation. These results appear broadly robust to assumptions about heterogeneous state responses and the inclusion of interactive fixed effects.

For a place-based policy to succeed, it must target the right areas—typically those with lower economic development and resident well-being. The U.S. has two major place-based tax policies: the New Markets Tax Credit (NMTC), where government- approved entities select investments, and Opportunity Zones (OZs), where private in- vestors choose projects. Despite underlying design differences, both target census tracts with high poverty rates, lower median income and weaker labor markets. However, OZs tend to attract more investment in areas with higher pre-existing private investment, often located in prosperous counties and high-growth regions. Census tracts lacking investment from either program generally show lower private investment, less home value growth, and less population growth, suggesting that additional policies may be needed to reach areas less primed for investment.

We investigate whether the Tax Cuts and Jobs Act (TCJA) impacts labor investment efficiency. By lowering the top corporate tax rate from 35 % to 21 %, ceteris paribus, the TCJA provides firms with a cash windfall. Based on difference-in-differences analysis using non-US based firms as a control group, we find that in the post-TCJA years, labor investment inefficiency increased for US based, but not for non-US based, firms. Further, the increase in labor investment inefficiency is concentrated among US firms with high cash holdings, suggesting that these firms face higher agency costs in the post-TCJA period. Additional analysis suggests that in the post-TCJA period, managers of high cash holding firms were seeking a quiet life. We find weak evidence that strong corporate governance mitigated this negative behavior. Overall, our findings show that tax reform can impact labor investment efficiency and should be of interest to investors, boards of directors, tax authorities, and to researchers.

This paper documents that corporate tax planning innovations, proxied by decreases in effective tax rates, contribute to excess shareholder returns and, thereby, a competitive advantage. Compared to other improvements in firm performance, tax planning innovations have smaller factor loadings and explain fewer variations in excess returns. Notably, sales growth explains more than seven times the variations in excess returns compared to tax planning innovations. Tax planning even falls behind interest expense reductions, given the challenge of altering firm capital structure. To address the concern that changes in firm performance drive the association between tax planning innovations and excess returns, I explore the market reactions to the legislation events of the Tax Cuts and Jobs Act (TCJA). Consistent with a lower statutory rate reducing the benefit of tax planning, firms with stronger tax planning competitive advantage before TCJA experienced more negative market reactions. Overall, my study provides strong evidence of the competitive advantages of tax planning, albeit the magnitude is limited.

This study examines the impact of the Tax Cuts and Jobs Act of 2017 (TCJA) on domestic labor union bargaining strength faced by U.S. multinational corporations (MNCs). Before TCJA, U.S. MNCs operated under a worldwide tax system that imposed incremental U.S. taxes on earnings repatriated from overseas, prompting MNCs to leave large cash balances abroad while simultaneously allowing them to strategically shelter cash from domestic union demands to preserve their bargaining power. The TCJA resolves such “trapped cash” concerns by allowing U.S. MNCs to repatriate foreign cash without incurring incremental U.S. tax. This allows domestic workers to access previously sheltered foreign cash reserves, thereby strengthening the bargaining power of unions representing domestic workers. Consistent with our prediction, we find that MNCs become more vulnerable to both potential and enacted collective bargaining power of labor unions after TCJA, evidenced by increases in union membership rates and both the frequency and duration of strikes, respectively. In additional analyses using an entropy-balanced sample of MNCs, we provide supporting evidence that TCJA’s “unchaining” of previously trapped foreign cash is the primary channel through which potential union strength increases ex-post.

Venture capital (VC) funds are sophisticated asset managers that focus on generating returns for investors. Despite this fact, extensive research concludes that VC funds use a tax-inefficient organizational form for their investments (i.e., startups), incurring a tax cost of about 5% of funds’ invested capital. Using a model that more fully incorporates VC fund taxation, we find the opposite result: analyzing the same data as prior research, we find that VC funds save about 8% of invested capital by using their startups’ current organizational form versus the alternative. However, this advantage is not borne equally by investors, including fund managers who face additional tax costs under the current organizational form. We also find that the Tax Cuts and Jobs Act of 2017 reduces the tax advantage of VC-backed startups’ current organizational form. Our model informs VC fund managers evaluating organizational form choice and policymakers considering potential outcomes of tax changes.

This study examines the impact of the Tax Cuts and Jobs Act of 2017 (TCJA) on domestic labor union bargaining strength faced by U.S. multinational corporations (MNCs). Before TCJA, U.S. MNCs operated under a worldwide tax system that imposed incremental U.S. taxes on earnings repatriated from overseas, prompting MNCs to leave large cash balances abroad while simultaneously allowing them to strategically shelter cash from domestic union demands to preserve their bargaining power. The TCJA resolves such “trapped cash” concerns by allowing U.S. MNCs to repatriate foreign cash without incurring incremental U.S. tax. This allows domestic workers to access previously sheltered foreign cash reserves, thereby strengthening the bargaining power of unions representing domestic workers. Consistent with our prediction, we find that MNCs become more vulnerable to both potential and enacted collective bargaining power of labor unions after TCJA, evidenced by increases in union membership rates and both the frequency and duration of strikes, respectively. In additional analyses using an entropy-balanced sample of MNCs, we provide supporting evidence that TCJA’s “unchaining” of previously trapped foreign cash is the primary channel through which potential union strength increases ex-post.

This chapter provides a description of one of the key anti-tax-avoidance rules to combat profit shifting by multinational corporations, so called Controlled Foreign Corporation (CFC) rules that directly target income in low-tax countries. We explain some key institutional features of CFC provisions. We then present some data and descriptive statistics before we review existing theoretical and empirical research analyzing CFC rules. Our review also includes the new U.S. GILTI rules. CFC rules are effective in curbing profit shifting, but their effect on the real economy is still unclear. In contrast, GILTI seems to be ineffective when it comes to profit shifting, but it has consequences for real activity. We finally argue that research on CFC regulations and GILTI can be informative in assessing the recent global minimum tax initiative.