Trade Credit and Taxes

Mihir A. Desai, C. Fritz Foley and James Hines

No 18107, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the extent to which firms use trade credit to reallocate capital in response to tax incentives. Tax-induced differences in pretax returns encourage the use of trade credit to reallocate capital from firms facing low tax rates to those facing high tax rates. Evidence from the worldwide operations of U.S. multinational firms indicates that affiliates in low-tax jurisdictions use trade credit to lend, whereas those in high-tax jurisdictions use trade credit to borrow: ten percent lower local tax rates are associated with net trade credit positions that are 1.4 percent higher as a fraction of sales. The use of trade credit to get capital out of low-tax, low-return environments is also illustrated by reactions of U.S. firms to the temporary repatriation tax holiday in 2005, when affiliates with positive net trade credit positions were significantly more likely than others to repatriate dividends to parent companies in the United States.

JEL-codes: F23 G31 G32 H25 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-acc and nep-pbe
Note: CF ITI PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2016. "Trade Credit and Taxes," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 132-139, March.

Downloads: (external link)
http://www.nber.org/papers/w18107.pdf (application/pdf)

Related works:
Journal Article: Trade Credit and Taxes (2016)
Working Paper: Trade Credit and Taxes (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:18107

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w18107

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().