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Trade Credit and Taxes

Mihir A. Desai¹; C. Fritz Foley¹; James R. Hines²

¹ Harvard University · ² University of Michigan–Ann Arbor

This paper analyzes the extent to which tax differences affect the use of trade credit. U.S.-owned affiliates in low-tax countries use trade credit to lend, whereas those in high-tax countries use trade credit to borrow: 10% lower local tax rates are associated with net trade credit positions that are 1.4% 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 the temporary repatriation tax holiday in 2005, which was used most intensively by affiliates with positive net trade credit positions.

DOI

10.1162/rest_a_00534

Volume

98 (1)

Pages

132-139

Language

en

Export

BibTeX

Sources

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